##tization would, in their words, “ limit the amount of money created. ” yet, as i suggested earlier, the g - m proposal itself might constrain securitization in undesirable ways, both related and unrelated to repo transactions. in addressing the franchise value issue, it would be interesting to pursue an important idea that g - m mention, but which is not at the center of their proposal : making the repo bankruptcy exception available only where the collateral conforms to certain criteria established by law or regulation. given the demand for repo funding, it seems worth considering whether this device could be used to create the necessary franchise value. indeed, if this approach had promise, it might be feasible for a regulatory body to establish the requisite criteria without providing insurance. with or without insurance, the “ franchise value ” might attach more to the instrument than to an institution. there is not time here to enumerate the potential difficulties with these ideas, but they are not hard to discern, even as stated in such skeletal form. in common with the g - m proposal, they would require a level of expertise and involvement in credit rating by the government that could pose practical and, in some conceivable alternatives, policy concerns. in any case, these are thoughts for further discussion, rather than developed options. gary gorton and andrew metrick have, in setting forth this proposal, continued to shape our understanding of the role and risks of the shadow banking system, as well as to add a specific proposal to our menu of possible responses.

tommaso padoa - schioppa : reflections on recent financial incidents luncheon speech given by mr tommaso padoa - schioppa, member of the executive board of the european central bank, at the third joint central bank research conference on risk measurement and systemic risk, basel, 8 march 2002. * * * introduction i am delighted to have this opportunity to meet this distinguished group of experts and former colleagues that has come together here in basel to study issues related to financial stability. i would like to share with you a few thoughts, inspired by the two recent cases of enron and argentina, respectively the largest - ever corporate and sovereign defaults we remember. like many observers, i will try to identify whether the two cases raise any fundamental questions concerning the functioning of the financial system and the interplay between market forces and public authorities. i started my career as a central banker some 35 years ago, when public intervention in the economy, and particularly in the financial sphere, was very pervasive. almost all business activities by banks required a specific authorisation, and many actions were simply forbidden. market participants had little room for free and innovative action. it has taken a long time for the pendulum of ideas, economic realities and policies to move towards market forces. public intervention has been gradually scaled back, from having an excessively wide scope to a narrow one, carefully targeted at market failures. this long shift – which has accidentally coincided with the span of my professional life, and to which both my actions and my convictions have fully adhered – has produced extraordinarily large efficiency gains from which our economies have greatly benefited. enron and argentina can undoubtedly be looked at from various angles, and only time will clarify the lessons we have learnt from the two cases. one question we can ask today is : do enron and argentina indicate that the pendulum may not be very far from swinging back again, between the two extremes of very pervasive public intervention and complete laissez - faire? is it time to reconsider – with some historical perspective – what public intervention is needed to best support the orderly functioning of financial markets? without pretending to provide full answers to these questions, let me just offer a few thoughts. risks in the financial sector i start with two observations about the origin and propagation of risks. first, although the increasing complexity of the financial system renders it more and more difficult to identify the origin of risks, we should never forget that the threat