7 finance ministers and central bank governors of 10 october, ( 2 ) the ecofin council conclusions of 7 october and ( 3 ) the declaration on a concerted european action plan of the euro area countries of 12 october. these documents list common principles in key areas ( ensuring appropriate liquidity, facilitating the funding of banks through various means, providing additional capital resources to financial institutions, recapitalisation of distressed banks, ensuring appropriate implementation of accounting rules, and enhancing cooperation among european countries ), while leaving national governments free to design the operational aspects of such interventions according to the specific characteristics of their domestic financial industries. in particular, these public commitments establish some core principles on how to address liquidity, funding and solvency problems that should contribute to define a common and more effective approach to overcoming the present turmoil. it is impressive to see that over the last few days this common approach has started materialising through the announcements by various euro area governments of co - ordinated action plans that comply with the general principles agreed in euro area and international fora. these announcements together with the recent plans adopted by the united states, the united kingdom and other eu member states show the strong determination of the international community to preserve the stability of our financial and economic systems. 4. 3 supervisors and regulators finally, the recent episode of financial turmoil has reminded us that financial globalisation makes the safeguarding of financial stability a more interdependent task, requiring effective coordinated international action aimed at addressing financial system vulnerabilities. against this background, both the public and the private sector have undertaken a major collective effort to identify measures needed to strengthen the resilience of the domestic and international financial systems in the longer term in order to avoid the recurrence of similar events in the future. particularly important in this respect is the report of the financial stability forum ( fsf ) on “ enhancing market and institutional resilience ” that has been fully endorsed by the international community and acts as the main reference for the necessary improvements. in this context, let me briefly recall some of the key areas in which the report has identified room for improvement : ( i ) some aspects of the prudential framework, relating to capital and liquidity risk as well as to banks ’ liquidity risk management practices ; ( ii ) transparency, including full disclosure of banks ’ exposures on structured products and off - balance sheet vehicles ; ( iii ) valuation standards, especially as regards marking - to - market illiquid assets ; ( iv )

the conduct of monetary policy – rather than one where it is incorporated in the baseline scenario. this is the basic concept behind the bank's approach, where it assesses the baseline scenario, or the most likely outlook – the assessment from the " first perspective " – while assessing various risk factors and the cost that would be incurred should risks materialize – the assessment from the " second perspective. " the latest outlook report provides, in the form of charts, the aggregated probability distributions compiled from the distributions attributed by individual policy board members to the likelihood of divergence upward or downward from their forecast, with the aim of providing more detailed and visual descriptions of the level of risks to the forecast. each chart shows a bell - shaped distribution with the most likely projection forming the top of the curve. the charts are called risk balance charts, since they indicate how the risks are distributed around the central view and how the distributions are skewed. the bank released these risk balance charts because it considered that risks that were not deemed most likely by the bank should also be described in a way that the public could understand easily. c. complex interdependency between financial and economic developments the third point i would like to mention is that there is a complex interdependency between financial and economic developments, and this should be fully taken into account in assessment of the economic and price situation. this relationship can be seen in japan's post - bubble experience in the late 1980s, the u. s. it bubble in the late 1990s, and the recent subprime mortgage problem. it is difficult to explain these cases by using models derived from standard economic theory. what happened in u. s. financial markets recently was a decline in market liquidity. when this occurs, although sellers of financial products in the market offer prices, no one is willing to buy at those prices, resulting in a drastic shrinkage of market transactions. as a result, market participants are unable to take or hedge risks, and this in turn negatively affects economic activity. unfortunately, there is no perfect explanation of why this complex phenomenon occurs. this makes it all the more important for central banks to continue their efforts to steadily gather and analyze a wide range of data, including information relating to both economic activity and financial conditions as well as information at both the macro - and micro - economic levels, and to update the analysis as new information comes in. i think, while the variety of knowledge and experience accumulated within central banks should be fully