( of 3 to 5 years ) conduct an in depth evaluation of the vulnerabilities of a country ’ s financial sector and the adequacy of prudential regulation and surveillance. however, the membership could not agree, in a straightforward manner, that financial sector stability was an integral part of fund surveillance, and therefore mandatory. the technical assistance nature of fsaps was used by some countries to argue that the fund should prioritise its resources to countries less equipped to conduct sound financial sector policies. as a consequence, some major systemically important financial sectors that proved very vulnerable did not undergo a timely and sufficiently in - depth scrutiny. last tuesday, the imf board decided that the 25 countries with a systemically important financial sector will undergo at least every 5 years an in - depth assessment of their financial sector. moreover, the board has stressed that financial sector policies are important in all cases of bilateral surveillance. this is a significant progress. multilateral surveillance bilateral surveillance, understandably, focuses on how national policies must be conducted in the country ’ s best interest. the premise is simple : if each country achieves internal stability and a sustainable external position without manipulating exchange rates, the system as a whole will function satisfactorily. while this remains largely valid, trade and financial integration and economic interdependence are now so far advanced that national economic interests must be pursued in a shared framework of collective stability. national policies pursued in the country ’ s own best ( short term ) interest might not be collectively consistent. the problem of the persistent global imbalances is an important example. to complement bilateral surveillance, the fund must formulate policy - oriented advice on how to improve the coherence of national policies toward improved collective stability and sustainable global growth. a promising proposal that has been floated recently is the production of spillover reports. it is to be welcomed that the fund plans to prepare, on a trial basis over the next year, at least three spillover reports for the us, the euro area and china. these reports will focus on outward spillovers of domestic policies of these economies and would involve not only the authorities of these economies ( akin to the contact for the regular article iv consultations ) but also the authorities of the economies affected by the policies. the launch of the first mutual assessment process ( map ) by the g20, in collaboration with the imf, is a new attempt at multilateral cooperation and coordination. given the potential benefits, this objective

not discuss the various proposed ratios in detail, as by now i am sure you know them quite well. many in the banking industry complained and argued that these reforms will make lending more expensive and imply a decline in the quantity of credit and, therefore, of gdp. we in the regulatory community believe that the length of the transition periods provided for the implementation of the new rules will significantly diminish the costs, to banks and the economy alike. consequently, the economic cost of the transition towards the new requirements should be very small in relation to the magnitude of the long - term benefits, derived from reducing the probability of financial crises and the severe loss in gdp and growth that would ensue. moreover the banks can use different avenues to reach, if needed, higher capital ratios : raising new funds, retaining a larger part of their profit, reducing some activities that are more risky. while the current proposal addresses a large part of the g20 global financial reform agenda, work on some crucial, additional elements will have to be completed in the coming months, in particular concerning the modalities of the introduction of a countercyclical buffer and new liquidity ratios. but i would like to insist in this short statement on a very critical macroprudential issue not yet really addressed : the potential impact of failure of systemically important financial institutions, or sifis, and the moral hazard associated with the belief that these institutions are too big to fail, a curiosity and, if i may say so, an extravagance in a market economy. the basel committee is currently working together with the financial stability board to develop a comprehensive, global approach to sifis that could involve a potential mix of policies such as capital or liquidity surcharges, large exposure limits, contingent capital, and bail - in debt. the goal is for each jurisdiction to have in place a sifi policy. effective resolution regimes, will constitute the basis of the approach, upon which other policies would build. a cornerstone of this foundation should, i think, consist of recovery and resolution plans, or “ living wills ”, formulated by the largest financial institutions. these plans will require institutions to specify the measures they will take in the event of severe stress and will also allow authorities to assess the potential orderly resolvability of these institutions without having recourse to public funds. the rapid spread of the financial crisis has been a lesson not only to market participants but also to supervisors. it has shown that the