on the aforesaid analysis, crude oil and global stock markets slumped by around 5 % and gold, after touching its all - time - high of us $ of 1920 slumped to $ 1530 per troy ounce on chicago mercantile exchange raising cash margins on gold futures by 20 %! as regards prevention of the building up of such systemic risks, the answer is addressing the “ cause ” and which is again there in my same speech. at the risk of being repetitive, it must be noted that even if global imbalances and accommodative monetary policy provided an enabling environment for excessive leverage and risk taking, it was still the responsibility of regulators and supervisors to have taken appropriate counter - cyclical macro - prudential measures, pre - emptively, decisively and proactively, rather than reactively. but unfortunately this broad - spectrum and generic failure of an inertial regulatory and supervisory system worldwide, especially in the west, precipitated the unprecedented global financial crisis. the most no - holds - barred acknowledgement of this, though it came much later only recently, was when donald kohn, former vice chairman of the us federal reserve apologized by saying, “ the cops were not on the beat, resulting in the worst economic recession and loss of millions of jobs ”! this regulatory and supervisory inertia to unprecedented build up of risk globally, typical and characteristic, of the hunky - dory and gung - ho financial environment of the pre - crisis days, is most graphically epitomized by what mark twain said 100 years ago : “ it ain't what you don't know that gets you into trouble ; it is what you know for sure that just ain't so! ”. this is precisely what the insidiousness of risk is all about! specifically, based on the financial parameters for detecting asset bubbles and under - pricing of risk, delineated in the paragraph 4 above, regulators / policy - makers need to deliver sector - specific counter - cyclical prudential measures like selectively increasing capital charge for riskier categories of assets by increasing risk weights for asset classes where bubbles exist, or are in the process of building. in addition, they need to be complemented by fixing the maximum absolute leverage ( not allowing for risk weights for assets ) in addition to risk weighted asset - based capital prescription. contextually, it is instructive to note the comments of the legendary investor warren buffett who,

for a high proportion of market capitalization, share prices have fallen sharply since march 2000, by 40 per cent in indonesia and taiwan, 30 per cent in korea and malaysia, and 20 per cent in thailand. the increase in corporate indebtedness and greater financial fragility of these countries have undermined the confidence of international investors. this has led to a substantial widening of the yield differentials between dollar - denominated bonds issued by these countries and us treasuries. equity markets have also declined sharply in latin america, with falls of 20 per cent in mexico and 30 per cent in argentina. financial market tensions in the latter heightened in the last two months of 2000. the yield differential between dollar - denominated argentine government securities and us treasuries has widened. turkey has experienced serious episodes of financial instability in conjunction with the crisis of its banking system ; there have been adverse repercussions on equity prices, interest rates and the exchange rate. the crisis was sparked when international banks cut back their lines of credit to turkish banks, which were highly exposed to exchange rate risk. the turbulence in argentina and turkey subsided following support interventions coordinated by the international monetary fund and marked by the significant participation of the private sector. the italian banking system has undergone a wave of mergers and far - reaching restructuring in the last ten years that, starting from a situation marked by low concentration and mainly small banks, has permitted the creation of groups better equipped to face international competition. the liberalization of banking activity and privatizations have helped to increase competition in domestic markets. the groups that have emerged have improved their profitability by expanding asset management business and reducing staff. it is now necessary for the leading groups to strengthen their organizational structures and make the improvements competition demands. they will need to simplify their group and productive structures, rationalize their distribution networks, integrate their information and riskmanagement systems, and expand their innovative lines of business, especially in services. in the last three years banks'profitability has already benefited from action to contain labour costs, the reduction in bad debts and higher revenues from asset management services. in the first half of 2000 banks'return on equity was 12. 4 per cent on an annual basis. figures for the first three quarters and preliminary data for the fourth confirm the promising outlook for the year as a whole. lending continued to expand rapidly in 2000. exposure to companies operating in high - tech sectors, at interest rates below the average for nonfinancial firms