##reen argues that history shows the need for deposit insurance and a lender of last resort to contain systemic risks to the financial market. he suggests that, by analogy, there is an argument for an international lender of last resort, but muses whether the imf or any other candidate has the capacity to carry out such a role, or the ability to contain the moral hazard that results. in domestic markets, he argues that moral hazard concerns underscore the need for vigorous supervision and regulation of financial institutions covered by lender of last resort facilities. it is in this area that i have the greatest reservations about the eichengreen prescription, reflecting our own aversion to excessive reliance on banking supervision and on well - intentioned, but ultimately self - defeating, financial safety nets. but in accepting his previous point that occasional bouts of financial instability are likely to be a characteristic of deregulated financial systems, we are compelled to consider the need for some means of moderating the impact of those inevitable bouts of instability. where we differ, i think, is on the potential to push the management of those risks back to the private sector. • information and transaction costs prevent decentralised markets from quickly and efficiently resolving crises. creditors face incentives to run for the exits at the first sign of trouble and, in doing so, are likely to exacerbate any emerging problem. this makes it difficult to orchestrate outcomes that might better preserve value and facilitate its “ fairer ” distribution. at the national level, insolvency and bankruptcy codes exist which give the courts power to impose restructuring and settlement terms. in eichengreen ’ s view, the absence of an international bankruptcy court with similar powers is a problem. • economic policy is framed in a politicised environment. this is a very simple but important point. it cannot be assumed that regulators and other economic policy makers will carry out their tasks without allowing themselves to be influenced by political considerations. and mostly, national governments will not cede their sovereignty or control of domestic economic affairs to an international body. that is a reality that should influence any thinking on the list of proposals to reform the international financial architecture. pulling all of this together, eichengreen ’ s conclusions are “ … predicated on the notion that international capital mobility is now a financial fact of life, and the problem for policy is ensure that the benefits of capital mobility exceed its costs rather than pretending that it can be made to go away. they are

disciplines of internationally mobile capital. in general, this seems like thoroughly sensible work. if there are reservations on my part, they relate largely to the risk that international standard setting becomes a substitute for intelligent case - by - case risk assessment. standards of good practice can too readily become excessively rigid templates which fail to adequately distinguish between diverse circumstances or fail to evolve with changing circumstances. form can come to dominate substance and, in those circumstances, such standards can become an impediment to sensible risk management rather than an aid. in essence, the risk is that those responsible for the management of banks or other enterprises stop thinking about the underlying risks their businesses face and, instead, become focused on what is required to conform to the regulators ’ standards. strengthening financial systems a number of different agencies have fingers in this particular pie. the basel committee of banking supervisors is reviewing gaps in its existing framework. the work underway includes data related issues, methods for dealing with weak banks, disclosure standards, financial sector safety nets, licensing, governance plus legal and judicial issues. in addition, a review of the 1988 capital accord is underway. banks ’ dealings with highly leveraged institutions ( hedge funds ) have also been under review, with an eye to reducing the risk of further surprises of the ltcm type. the financial stability forum has been established, under the chairmanship of andrew crockett, general manager of the bis, with the aim of strengthening cooperation among the international organisations, regulatory associations and expert groups with responsibilities in the field of financial regulation and oversight. the core work is taking place in three groups looking at, respectively, hedge funds, off - shore financial centres and short - term capital flows. the international accounting standards committee ( iasc ) is completing its work on developing a core set of international accounting standards that could be adopted for international cross - border listings. the oecd and the world bank have finalised the development of guiding principles on corporate governance. the imf is strengthening its surveillance of countries ’ financial systems in the course of its article iv consultations, with a view to improving evaluations of their soundness and vulnerabilities. this is also likely to include reviews of member countries ’ compliance with the various standards, guidelines and principles referred to. the imf, world bank and the un commission on international trade law ( uncitral ) are all working on guidelines for effective insolvency regimes, especially for use in developing countries. again, this work falls mostly into the