##ured liability holders while preserving orderly markets. such a resolution will be necessary to limit the moral hazard of any interventions that we are forced to undertake. market participants need to consider how they would settle contracts and work with troubled borrowers in a distress situation. more planning will reduce the rise in uncertainty in a crisis and the likelihood that fear will lead to precipitous actions that are in no one's best interest. in sum, there are good reasons to think that financial innovation over the past few decades, including the emergence and growth of the credit derivatives markets, has made the financial system and the economy more resilient. but it would be foolish to think that these innovations have eliminated systemic risk. both market participants and public authorities need to think carefully about how systemic risks might crystallize in the new world that credit derivatives have helped create. they need to identify the implications for risk management and ensure that risk - management practices are adapting to target new sources of risk. and they need to think about how they would respond to crises that sooner or later will emerge in that new world.

##ll, u. s. banks and investment banks were highly competitive and successful as each specialized in lending to or underwriting businesses all over the world. there is considerable evidence that under glass - steagall the united states was at no competitive disadvantage to europe, with its mingled merchant banking system. the united states led the world – because it had strong, prudently run institutions that knew how to manage money in the best interests of the client. this categorization of financial activities is from matthew richardson, roy smith and ingo walter in chapter 7 of regulating wall street : the dodd - frank act and the new architecture of global finance, edited by viral v. acharya, thomas f. cooley, matthew richardson, ingo walter, new york university stern school of business, john wiley & sons inc., 2010. bis central bankers ’ speeches second, there is no strong evidence of unlimited economies of scale and even less for wide economies of scope. although both exist, they are captured at an asset size far less than that of sifis today. third, large corporations would have ample convenient access to commercial and traditional investment banking services inside commercial banking. they would have to go to securities dealers to purchase swaps and other derivatives for hedging purposes, something that has been done in the past without difficulty. finally, it also seems improbable to me that any country should be willing or able to expand its safety net or to expose its taxpayers to the undefined risks of protecting ever - larger and more complex banking organizations. instead, what countries should be focused on now is getting back to fundamentals aimed at simplifying highly complex and unstable sifis. the focus should be on financial stability. reforming the shadow banking system a legitimate concern of limiting the safety net is that this could worsen the risk of financial instability by pushing activities to the unregulated shadow banking system. clearly, focusing solely on the regulated banking industry and ignoring the unregulated shadow banking system would not solve the problem and, in fact, might expand the shadow banking sector that was an integral part of the financial crisis. much of the instability in the shadow banking system stems from its use of short - term funding for longer - term investment. the solution to this instability problem is not to provide a safety net for the shadow banks and regulate them more but, instead, to remove exceptions in which money market instruments are treated essentially as deposits. the current exceptions encourage significant short -