of korea. and today we introduce the new corporate identity of the bank symbolizing its credibility, expertise and independence. against this backdrop, we must remember once again that it is our bounden duty to maximize the potential of each and every member of the central bank staff. through our unstinting efforts, the bank of korea will secure an even firmer standing as a central bank which gives credibility and hope to the public. i wish you and all of those you hold dear the very best of health and the greatest of happiness in this new year. thank you. yves mersch : the financial crisis – challenges and new ideas speech by mr yves mersch, governor of the central bank of luxembourg, at the luxembourg school of finance, luxembourg, 28 january 2010. * * * i am very pleased to be here tonight and wish to thank the luxembourg school of finance for providing me with this opportunity to speak on the recent financial crisis, the policy response, and the challenges ahead. the run - up to the crisis was driven by animal spirits, which encouraged excessive risk - taking by investors and a significant increase in financial sector leverage. asset price declines triggered an unexpected departure from the normal functioning of the financial system, plunging agents into unquantifiable “ knightian ” uncertainty. this unleashed panic, characterised by a “ flight to safety ” and fire sales of financial assets that amplified the crisis. the risk to systemic stability required intervention by the authorities that was unprecedented both in its extent and in its form. it is important to recall that we have very limited knowledge of many aspects of the crisis. all financial crises share certain phases of market behaviour, but they are all different. in recent years some warnings highlighted existing imbalances and vulnerabilities, but nobody predicted the timing and nature of such a sudden break in market behaviour. as the crisis unfolded, authorities had to take policy decisions rapidly although their effects had become uncertain, as normal market functioning could no longer be expected. what was most surprising in the recent crisis was the role played by liquidity. in retrospect, it is easy to conclude that it should have been monitored more closely and that pro - cyclical behaviour needed to be mitigated more effectively. however, these suggestions only represent “ preventative care ”. the implementation of such measures could reduce the likelihood, or at least the extent, of future crises. once a crisis hits, it is too late for “ preventative care ” and the authorities have to implement “

terms of the scale of its production and exports, it already ranks first in the electronic household appliance, textiles, clothing, footwear and iron and steel sectors. china has risen to become the'workshop of the world'nowadays, and it accounts for the seventh largest share of the global economy. it also holds the world's second largest foreign exchange reserves, trailing only japan. this means it is well on its way to having a substantial influence in the international financial markets. 4. india around the year 1991, india finally abandoned its long cherished system of a planned and self - reliant economic system. with the promotion of its new industrial policy, industrialization based on the market mechanism and economic openness really got underway. the framework of india's development model broadly coincided with those of the asian countries already described in that it relied on low - wage human resources and on imports of capital and technology. india's potential became all the more obvious with the advent of the knowledge and information technology era. barriers of space for the delivery of services were dissolved by the information technology revolution, and international outsourcing became a sharply increasing worldwide trend. india readily adapted to these environmental changes. as well as its abundant low cost manpower and outstanding scientific and engineering human resources, the country's historical and cultural legacy of the common use of english could also be transformed into a competitive strength. in this way, by 2004 india has emerged as the world's 10th largest economy in terms of scale. v. the asian economy's prospects in the world 1. the asian economy's growth potential i would now like to talk about the likelihood of the asian economy's high growth being sustained. this question is directly linked to the asian economy's growth potential. the high growth of japan after the war and that of korea from the 1960s is frequently termed a'miracle.'although the industrialization of china and india so far holds out brilliant promise, it may still be thought of as something of a'vast experiment in economic development ', given that so much uncertainty surrounds its future course. the population of china and india together makes up one third of the world. in recent history there is no example of a country on this scale successfully carrying out industrialization. besides this, the two countries have a strong tradition of socialism. this has been pointed out by some as a factor underlying the uncertainty. the historical experience has been that the development of a market economy has tended to prompt demands