market share, combined with unrealistic expectations about growth and performance prospects. but no matter how much risk exposures get sliced, diced and distributed among financial market participants, financial innovation cannot mask poor underwriting. at the same time, the additional complexity, opacity and leverage resulting from certain structured products and offbalance sheet vehicles further magnified the problem, as it has not been sufficiently clear where the ultimate risk lies. this brings me to my second point. risk management infrastructure and financial innovation indeed, the second fundamental shortcoming is the wide disparity between the rapid pace of financial innovation and the risk management infrastructure on which this innovation was built. when i spoke at last year ’ s garp conference, i noted that the linkages between the various segments of the credit markets and financial institutions had been fundamentally altered. this is mainly due to increased market - based credit intermediation, or the originateto - distribute model. historic or statistical measures of risk and exposure, such as value - at - risk, past loss experiences and name concentration in the traditional banking book have proved inadequate when assessing relationships in the originate - to - distribute model and how they may perform under stress. in fact, the use of these and other historic measures resulted in a massive understatement of stressed losses, which were far below the actual losses experienced to date. as i suggested at last year ’ s conference, the greater reliance on securitisation and other risk transfer mechanisms means that banks are more vulnerable to exposures building up or returning to the balance sheet when market liquidity seizes up. in addition, increased reliance on market liquidity means that problems in financial markets can adversely – and very quickly – affect banks ’ funding liquidity. however, for those institutions that stress test funding capabilities, many only assumed a firm - specific event. the problems arising from poor underwriting were compounded by failures to manage firmwide concentrations. many firms were unaware of their overall exposure to subprime mortgages and related structured products, such as cdos, whose repayment depend on such mortgages. these concentrations went far beyond traditional loan portfolio exposures and included cdos and mortgage - backed securities held in the trading book ; liquidity facilities extended to conduits ; reputational exposures to sponsored sivs ; and counterparty exposures to the monoline sector. in addition to failing to understand their firm - wide concentrations, many institutions could not readily nor easily aggregate their subprime exposure

is likely to become accepted as a new standard soon. thus, the bank missed a golden opportunity to be a pace - setter in this area in the emerging world. another regret is our failure as the main provider of data on banking, finance and international trade to the imf to graduate to the imf ’ s special data dissemination standards. had other key players in the sector shared our vision, we would have ranked with malta and cyprus, both of which joined the league of sdds countries last week. all is not lost, though, as we are working hard to join this higher reporting standard so that we can rank among the best. punching above one ’ s weight has always been a key driver for many of my actions. this is done more easily if the entire team shares the same mind - set and is prepared to leave their comfort zone to reach ever higher and higher. hilary clinton, the us secretary of state, has been lavishing praise on our government as an economic and moral leader in africa. the world bank has given our economy a clean bill of health. the imf is holding what it calls our “ hybrid system of inflation targeting ” as a model for other countries to emulate. and, for good measure, the fund has re - classified our exchange rate regime as “ free floating ”, going up one notch above “ managed floating. ” we do not have the vaulting ambition to aim for the next level, which is that of a reserve currency! to a troubled world we seem to have offered some fresh tuition. yet we should beware of hubris. so let us be warned by h g wells, one of the founding fathers of that fine institution, lse – much beloved of our minister of finance, and my daughter – who asserted over 100 years ago : “ human history becomes more and more a race between education and catastrophe ”. thus we must learn from the current troubles, shrewdly building on our evidence - based approach to business, banking and finance. the world economic forum index may put us top of the african league on probity, but we still come low on the global list ; hilary likes our form of democracy, but the privy council has probed some of our political election practices and found some of our customs wanting. we may be getting along in economic growth ; but what about the degradation of our natural environment and the effectiveness of our response to the risks of climate change and sea level rise? our lodestar must be the