whether the new rules for the financial system will be internationally compatible or bring about an uneven level playing field, leading to regulatory arbitrage. at the end of the day, it is the globally consistent implementation and transposition of the adopted key reforms into national law that counts. while heterogeneous national structures make it imperative to maintain a certain degree of flexibility when reforming financial regulation, we must ensure that individual countries do not game the system to the benefit of their own financial institutions. financial centres, when vying for a good position among themselves, must under no circumstances be permitted to engage in activities at the expense of financial stability, not least given the ever closer interconnectedness in the global financial system. individual countries should not seek advantages by watering down, or by reluctantly implementing internationally agreed reforms. to avoid such beggar - thy - neighbour policies, transparency, peer pressure and a close monitoring of progress in implementing agreed standards and measures will be essential. 5. conclusion ladies and gentlemen, to sum up : a number of crucial reform measures designed to secure financial stability have already been approved or are under way. yet important tasks still lie ahead. above all, we need • to find a solution for the sifi problem ; • to ensure that all financial institutions can be resolved without dragging down the whole system ; and • to identify the shadow banking system and expose it to supervision. in doing all this, we must strike the right balance between paying sufficient attention to peculiarities of national financial systems and ensuring an international level playing field. thank you for your attention! bis central bankers ’ speeches

while progress on a national level has been remarkable in many countries, obstacles to effective cross - border resolution remain. thus, one of our main tasks in the coming months will be to establish and ensure mutual compatibility between different national restructuring and resolution mechanisms. yet we should bear in mind that an orderly resolution of financial institutions which are truly active on a global level may be possible only to a certain degree. at the european level at least, the proposed european commission legislation, which is due before this summer, looks to represent a major step forward. 3. 3 let ’ s not overlook the shadow banking system the third regulatory challenge i want to address is the necessity to extend our reform efforts beyond the banking system. the stricter rules imposed on banks via basel iii and the rules for sifis entail the realistic danger that activities will be shifted to less regulated areas. therefore, it is imperative for us to better illuminate the fringes of the financial system. in other words, we must closely monitor and regulate what is commonly referred to as the shadow banking system. whether a market participant is classified as belonging to the shadow banking system should depend not so much on its institutional type but on its activities. at the behest of the g20, the fsb is currently exploring ways and means of monitoring and regulating the shadow banking system. it has recently defined the term shadow banking as “ credit intermediation involving entities and activities outside the regular banking system ”. 2 this rather broad definition involves non - banks such as special purpose vehicles and money market funds, but also hedge funds. the fsb will present a set of recommendations to the g20 in autumn of this year. what is already obvious today is the need to significantly enhance transparency by imposing appropriate registration requirements as well as reporting obligations on all parts of the financial system. yet better monitoring will not be enough. to reduce systemic risk, better regulation of the shadow banking system will be necessary too. this could be done either directly, by regulating the activities and actors of the shadow banking system themselves. or indirectly, by regulating banks ’ interactions with the shadow banking system. need for international cooperation let me close by emphasising once more the urgent need for international cooperation. more than 4 years after the outbreak of the crisis, we are now at a crossroads. our cooperation in see fsb, shadow banking : scoping the issues, a background note of the financial stability board, 12 april 2011. bis central bankers ’ speeches the coming months will decide