of the seamless conduct of surveillance and policy coordination. i would now like to run through the challenges that particularly strike me. iii. challenges of surveillance and coordination let me first point out the four factors that complicate the exercise of surveillance. bis central bankers ’ speeches 1. blurred designation of accountability due to the complexity of financial instruments first of all, the recent financial crisis is set apart from previous crises in the sense that it is difficult to put your finger on the exact locus of responsibility for those specific elements that gave rise to it. this very fact itself represents a substantial hurdle for surveillance. for example, more than one thousand people were held criminally liable when many us savings and loans associations folded in the 1980 ’ s. on the other hand, with the possible exception of a handful of cases such as that of bernie madoff, no criminal prosecutions were undertaken against the staff and management of financial institutions during the recent crisis. today, it is much more difficult to pinpoint those players who actually give rise to risk because the “ originate and distribute ” model passes on and spreads out heavy risks into a myriad of lesser risks. “ cdos ( collateralized debt obligations ) ”, frequently cited of the major causes of the sub - prime crisis, are a case in point. when cdos go through “ originate and distribute ” process numerous times, the riskcreating entity cannot be clearly identified. for this reason, regulatory authorities were unable to fully comprehend the trade mechanism and the relevant data of cdos when lehman went bankrupt in september 2008. the purpose of surveillance is “ to detect problems ahead of time and correct faulty elements ”. nonetheless, if the structures and transactional processes of financial instruments are too complex as with cdos, in which it is too difficult to identify the problematic entity, surveillance becomes a path fraught with difficulties. 2. financial innovation incentives secondly, the incentives for innovation by financial market players themselves turn into barriers to effective surveillance. the market reacts spontaneously and swiftly to new regulations by innovating techniques and products to circumvent them. innovation on the part of market participants can be expressed in other words as “ the build - up of a new risk or imbalance that is not immediately apparent to the relevant authorities. ” during the period of transition to basel iii, banks will attempt to minimize the burden imposed by the new regulations. this change in the regulatory environment will create new sideeffects with the potential for triggering the eruption of new and unantici

choongsoo kim : the challenges of surveillance and coordination speech by mr choongsoo kim, governor of the bank of korea, at the international symposium of the banque de france : regulation in the face of global imbalances, paris, 4 march 2011. * i. * * introduction i would like to express my gratitude to governor noyer for inviting me to this symposium. i also want to thank all the other banque de france officials for preparing today ’ s symposium. as you will recall, last month g20 finance ministers and central bank governors agreed on indicative guidelines to address global imbalances. the final indicative guideline should be approved at the coming april g20 meeting, and i am sure that france as the g20 chair will successfully demonstrate its leadership in producing concerted and coordinated deliverables. ii. global imbalances, surveillance and policy coordination as president sarkozy mentioned at the press conference in january, there have been 125 banking crises during the past 40 years, and their occurrence has picked up extraordinary speed over the last 20 years. this clearly underlines how global imbalances are now building up ever faster. a financial crisis is no longer a “ tail risk ” with a low probability of occurrence. it should rather be regarded as a “ normal risk ” that can materialize at any time and at any place in new and diverse forms. a capacity to pick up promptly on the build - up of fresh imbalances calls for preemptive and proactive surveillance by central banks and supervisory authorities. what is more, closer attention must be paid to the mounting importance of crossborder and cross - institutional policy coordination in the process of resolving such imbalances. on october 8th 2008, the us, canada, the uk, the ecb, sweden, and switzerland together decisively lowered their policy rates in a concerted move. the six of them demonstrated their resolve to overcome the crisis through such international coordination, and this effectively tamed the raging turbulence of market sentiment and helped restore stability. this experience teaches us the valuable lesson that international coordination can lessen market uncertainty in times of global crisis. international coordination, therefore, is undoubtedly the key to resolving the global imbalances. arguably it was the framework of international policy coordination through the g20 summit that made it possible to overcome the global financial crisis earlier than anticipated and allowed the swift introduction of basel iii. on the other hand, there are a number of obstacles that stand in the way