the stronger payment and settlement system infrastructure make our financial system stronger today than it has been. with these favorable developments, however, come a range of challenges. i want to discuss a few of these and their implications. this is not meant to be, and is not, a comprehensive list. the first is the challenge of complexity. with financial growth and innovation, we have seen a dramatic increase in the complexity of the risk management challenge. the frontier of innovation inevitably advances somewhat ahead of the pace of improvements in the risk management and supervisory infrastructure. the models used to inform credit judgments, to measure exposure, and to price risk in the newest instruments and trading strategies are by definition less grounded in experience. the process of assigning fair or market value is much more subjective and less amenable to objective verification. consensus on the appropriate accounting treatment is less well established. as the complexity of risks has grown, so have the demands on firms to understand how exposures might evolve, especially in times of market stress. as an example, basis risk - in which hedged positions only partially offset one another - is an increasingly important concern for many firms, especially those that deal in complex products such as options. assessing and managing these more complex risks requires risk management tools with a commensurate level of sophistication. in particular, the further development of techniques for stress testing and scenario analysis and of methods for translating stress test results into concrete risk management outcomes are important areas for additional progress. the risk management challenge is complicated by the nature of the institutions at the core of the system. large, diversified financial institutions comprise many separate, highly specialized business units, each of which can have its own approach to tracking and managing risk exposures. integrating across these businesses to develop a firm - wide, portfolio risk perspective is an important challenge, one that has many guises within a large, complex firm. for example, managing the complex pattern of risk exposures that derive from membership in multiple payment and security settlement systems, each of which has loss - sharing arrangements that generate contingent exposures among and between their members, is just one small facet of the broader challenge facing such firms today. the difficulty of managing the conflicts in dealings with customers is also significantly enhanced for these large, diversified institutions, given the multiple roles that they play. more generally, it is increasingly challenging for many large, diverse financial institutions to get an accurate picture of their aggregate exposure to individual creditors when their business contacts can come through so many different

a dominant role in our economy that it was appropriate to focus our non - standard measures on the banking sector. this profound contrast in financial and economic structures explains the different responses by central banks to the crisis as exemplified by the approaches of the ecb and the federal reserve system of the us. we rely on different channels as regards the transmission of our policy action. but these variations do not reflect conflicting views on fundamental principles or objectives. on the contrary : given the different structures, the approaches need to be different to achieve the same objective. thus, i would strongly argue that central banks around the world are united in purpose. as i indicated before, the remarks i just made on the ecb ’ s response to the crisis did not contain any message concerning future monetary policy, and should not be interpreted as containing any such message. emerging markets and mediterranean economies in the global economy today we are celebrating the 50th anniversary of bank al - maghrib. this is also an occasion to reflect on the role of the mediterranean region, and on the role of emerging market economies in general in the global economy. the growing importance of these economies, including those in this area, has profound implications for the euro area and the rest of the world. i would like to share my thoughts with you on this phenomenon. the growing role of emerging market economies the global financial crisis is slowing the growth of the emerging market economies. only a year ago, some observers were still saying that these economies were likely to decouple from the downturn stemming from the advanced economies. today it is obvious that this has not happened. most emerging markets are affected by the crisis through real or financial channels. many sectors have been severely hit by the global turmoil, for instance, the automotive, textile, building and tourist industries. in addition, remittances which, for many emerging markets, are an important source of revenue, are vulnerable to the downturn in host countries, even though they tend to be a relatively stable source of income. it is too early to say when emerging market economies will bottom out of the global financial crisis, but some recent data, particularly for asia, are somewhat encouraging. according to the latest imf forecasts, world output will shrink by 1. 3 % and the advanced economies by no less than 3. 8 %. however, gdp in emerging markets, though lower than in previous years, will still grow by 1. 6 %. despite the crisis, the long - run prospects for emerging market economies