##les without adequately considering the credit quality of the hedge counterparties, specifically the russian banks that were the counterparties to foreign exchange hedges. in the case of derivative positions that banks had with hedge funds, the risk was not so much the potential for rapid change in the value of the underlying position, given that banks insist on collateral backing on contracts for which they are in the money and also generally hedge these positions. however, assessment of the risk of the counterparties remains an important task, because when a counterparty defaults banks lose one end of their hedged positions and must quickly replenish such positions in volatile and illiquid markets. and, of course, in asia, russia, and elsewhere banks lent to domestic businesses with poor underlying financials, sometimes because of encouragement of the government, sometimes as a result of a system of connected lending, and often because of expectations that domestic governments would bail out the important businesses. put differently, banks most often still lose money the old - fashioned way : poor credit judgments and bad luck. we should not lose sight of this as we adopt new procedures and techniques. whether for the old or new techniques and problems, the culture of on - site supervision is much less strong in other countries and in some cases is almost non - existent. indeed, in some cases, supervision consists entirely of reviewing publicly available financial statements to determine compliance with prudential regulations. this is another area where convergence is badly needed. iv. conclusion banks in emerging economies are increasingly becoming players in global banking. to maintain the stability of the global banking system it is important that these banks converge toward best practice standards and that the regulatory and supervisory infrastructure in these economies similarly meet global norms. there is an important role in this process for international standard setting, technical assistance, and monitoring compliance with these standards. at the same time, consolidation, globalization, and the increased complexity and breadth of activities are increasing the challenge of regulating and supervising banks around the world. best practices must therefore keep pace with market developments. i believe that a recipe for dynamic best practices involves enhancing the role of market discipline, reforming international capital standards, and improving supervisory practice. * * * this bis review is available on the bis website ( www. bis. org ). _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

##ers are pulling back from the use of brokers. the reassessment and resulting increase in the attention to loan quality should help prevent a recurrence of the recent subprime problems. nevertheless, many homeowners who took out mortgages in recent years are in financial distress. to help those borrowers, the federal reserve, together with the other federal supervisory agencies, has issued two statements – in april, to mortgage lenders ; and earlier this month, to mortgage servicers – to encourage the financial industry to work with borrowers to arrange prudent loan modifications to avoid unnecessary foreclosures. the conference of state bank supervisors ( csbs ) joined the federal agencies in the second statement. often, loan workouts are in the interest of all parties. we have also encouraged lenders and servicers to identify and contact borrowers who, with counseling and possible loan modifications, may be able to avoid entering delinquency or foreclosure. the simple step of reaching out to borrowers before they get into trouble can be very productive. in addition, a member of the federal reserve board serves as a director of neighborworks america, which encourages borrowers facing payment difficulties to seek help by contacting their lenders, services, or trusted counselors. recently, neighborworks america launched a nationwide advertising campaign to increase awareness of available support from their 24 - hour hotline, and they are now responding to 2, 000 calls a day, almost double the number in june. additionally, the federal reserve is working closely with community and industry groups around the country to reduce homeowners'risks of foreclosure. the community affairs offices in each of the reserve banks provide significant leadership and technical assistance. for instance, a public - private collaboration initiated by the federal reserve bank of chicago with neighborhood housing services of chicago and the city of chicago produced the home ownership preservation initiative ( hopi ), which began in 2003. in the ensuing three years, the hopi program counseled more than 4, 000 people, prevented 1, 300 foreclosures, and reclaimed 300 buildings. 2 hopi has also been a model for foreclosure prevention programs now operating around the country, including in baltimore and atlanta and in ohio. as another example, the community affairs office of the federal reserve bank of san francisco recently convened a series of workshops to develop community - based solutions to mortgage delinquencies in six cities. more than 700 lenders, housing