and other requirements on systemic institutions to a point where the likelihood and impact of default is reduced to a very low level. this will come at a cost to intermediation and global financial integration. given the diversity of institutions and financial systems involved, a key challenge will be to avoid inconsistencies in what results. we must achieve consistent design and implementation of new measures to ensure a level playing field and to address potential concerns about market fragmentation. our aim is to reduce systemic risks globally by having standards for tbtf firms that set a common floor, and actions across countries that are sufficiently coordinated to avoid regulatory arbitrage. we will provide an interim report on these issues to the g20 summit in june, and final recommendations to the november summit. third, we must finalise reforms to regulate, make transparent and centrally clear a substantial portion of the otc derivatives markets, and so reduce their scope to act as channels of contagion. legislation is advancing in the us and eu to establish the requisite frameworks for this. among critical questions to resolve are : which derivatives products can and should be standardised, and ought to be subject to a mandatory central clearing requirement ; whether, and if so how to define which type of, commercial end - users should be exempted from these requirements. we must be careful to avoid inconsistencies here, because this will drive regulatory arbitrage in this global market. to accomplish meaningful systemic risk reduction, we need robust globally agreed standards of soundness for all central counterparties. and governments should ensure that the determination of which derivatives should subject be to central clearing is not left to central counterparties alone. we also need harmonised definitions of standardised derivatives, and are setting in train work across the us and eu to this effect. it is also imperative that regulators have the information available to them to police the market for potential manipulative abuses. this is why there must be mandatory trade reporting of all otc derivatives transactions, regardless of whether they are centrally cleared or bilaterally negotiated. fourth, we must firmly embed reforms to compensation practices at financial institutions. as you know, the fsb set out principles and implementation standards for sound compensation arrangements last year. in december, we launched a detailed assessment of implementation of these standards. this is a very important task not just because this is the fsb ’ s first peer review, but also because of the importance and political dimension of this topic. we are on schedule to conclude this review later

include more encompassing surveillance, with broadened macro - prudential perspectives, as well as mechanisms for triggering action on identified risks. examples are the european systemic risk board and related arrangements, the us financial services oversight council, the imf - fsb early warning exercise, and the establishment of the fsb itself. second, as part of this, major jurisdictions and regions are overhauling their regulatory and supervisory structures to strengthen responsiveness to systemic risks, improve coordination and close gaps. the fsb is in many ways the international manifestation of these efforts ; third, the regulatory perimeter is being expanded. major jurisdictions are finalizing legislation that for the first time establishes formal oversight over the otc derivatives markets and its major dealers, hedge funds and credit rating agencies. in fourth, we have put in place cross - border oversight and crisis management contingency planning for the largest and most complex global financial institutions, each of which now have functioning core supervisory colleges and crisis management groups. at the level of the essential regulatory policies to buttress financial stability, let me recall : that we are in the process of calibrating a fundamentally revised global bank capital framework which will establish stronger protection through improved risk coverage, more and higher quality capital, a counter - cyclical buffer and a constraint on the build - up of banking sector leverage ; second, we have developed and will implement a global liquidity standard for banks that will promote higher liquidity buffers and constrain the maturity mismatching that created the condition for this crisis ; third, we are making progress in developing a policy framework and tools to roll back the moral hazard risks posed by institutions that are systemically important ; fourth, we have eliminated the perverse incentives that pervaded securitization, including the scope for leverage to develop in opaque off - balance sheet vehicles through changes to accounting standards and regulatory and prudential rules ; fifth, we have developed a series of supervisory tools to raise standards of governance, risk management and capital conservation at core financial institutions. in this context, let me note that : – we are making strong progress towards a forward looking expected loss provisioning regime for credit losses which will dampen procyclicality and align accounting and prudential objectives in this key area ; and – we are making good headway towards establishing compensation regimes that are better aligned with risks taken in significant financial institutions. i have been selective in my enumeration. but the point i want to make is that we should not under