been provided and is being further developed by the basel committee on banking supervision and public sector initiatives, such as the european and the american securitisation fora. in the same vein, the international accounting standards board is intensifying its work to enhance the accounting and disclosure standards for off - balance sheet entities and to develop guidance for valuation in illiquid markets. the ecb is monitoring developments in this area, and i believe that providing clear guidance on this issue is pivotal to improving the confidence in and the comparability of banks ’ financial statements. finally, another area where good progress has been made under the impulse of the fsf concerns the role of credit rating agencies, which is being clarified thanks to new regulation by the sec and the revision of the iosco code of conduct. at the same time, in europe, the european commission will engage in regulatory initiatives for the credit rating agencies ’ authorisation and supervision. let me now focus on three issues which i believe are especially important in the current context and for which transatlantic cooperation between central banks and financial regulators is warranted, namely risk management, procyclicality and financial stability arrangements. with regard to risk management, it has become clear that the current situation in the financial markets originated for the large part in excessive risk - taking and leverage by financial institutions. a key explanation for this behaviour lies in banks ’ risk management systems, which did not appropriately price risks, resulting in the creation of capital and liquidity buffers that ( in many cases ) proved insufficient to insulate them from the dislocation in the financial markets. furthermore, liquidity risk did not receive enough attention in banks ’ overall risk management. strengthening risk management techniques and procedures is key in the current context. public authorities have a clear role in this respect, and the basel committee on banking supervision is a major player in this field at the global level. i fully endorse the work done by the basel committee to review banks ’ risk management practices, as well as the guidance on sound liquidity risk management and supervision, which was recently published and constitutes a benchmark for the practices of financial institutions. the european central bank, as the ultimate provider of liquidity in the euro area, has a particular interest in issues relating to liquidity risk management. against this background, our work on liquidity stress testing and contingency funding plans has highlighted the importance of both banking supervisors and central banks having access to the results of liquidity stress tests carried out by

under emu, member countries are unable to use country - specific monetary and exchange rate policies to address countryspecific shocks. the adjustment to such economic fluctuations will therefore have to take place through other adjustment mechanisms. without price and wage flexibility and mobility of production factors, economic shocks would lead to lower economic growth and higher unemployment. let me say a few more words on the important role of these adjustment mechanisms in a monetary union. the theory of optimal currency areas ever since the idea of emu was launched, a discussion has ensued as to whether the whole or part of europe would be an optimal currency area. the optimal currency area theory defines a set of mechanisms that might be set in motion when a participating country or region, in a monetary union, is hit by an asymmetric shock. first, adjustment to the shock might come from domestic price or wage changes, thereby altering the real exchange rate without changing the nominal exchange rate. secondly, migration of production factors might act as an adjustment channel. these flows of labour and capital are facilitated by a high degree of economic and financial integration of the countries participating in the union. in addition to this, the theory of optimal currency areas has also something to say on the similarity of shocks affecting countries or regions in a monetary union. in this respect, the degree of trade and financial integration are often considered. trade and financial integration may tend to lead to more similar economic developments in the respective countries or regions in a monetary union, reducing the likelihood of asymmetric shocks and increasing the economies'abilities to adjust to these shocks. so far the theory, let me now move on to the practice. i will now focus on two adjustment mechanisms : price - wage flexibility and factor mobility. a host of empirical studies on these mechanisms has been undertaken for the euro area. how well does the euro area measure up against these two criteria? price and wage flexibility there is broad agreement that price flexibility is low across euro area countries in comparison with the united states. in the euro area, price flexibility for goods and services is hampered by trade barriers, continuing state aid to several sectors and, more generally, a lack of competition in sectors that have been dominated by monopolies or state owned enterprises. low wage flexibility is also an important factor behind the lack of price flexibility in the euro area. many studies indicate that in comparison with the united states, real wages are relatively inflexible in europe. more specifically, i mean that the downward responsiveness of real wages to