place in 2008, many emerging countries have experienced sudden stops of capital inflows on a recurrent basis. the international financial architecture as it was before the crisis lacked appropriate tools to deal with volatility in global capital flows and to prevent crisis contagion. this was an incentive for emerging countries to self - insure against global liquidity shocks by accumulating international reserves or protect themselves through capital flows control, both distortive types of protection. reserve accumulation is costly to emerging economies as they have to restrain consumption and forego profitable investment opportunities in order to buy the low - yield assets that usually constitute reserves. it also has global consequences. for those emerging market economies that ran a current account surplus to accumulate reserves, the process has contributed to current account imbalances. this is why finance has an important role to play to help these economies effectively deal with capital volatility. a lot has already been done by g20 countries and international institutions since the beginning of the crisis. central banks of large advanced countries have set up swap arrangements with some emerging countries. the international monetary fund has created a precautionary lending facility : the flexible credit line. a general sdr allocation of usd 250 bn has been agreed in the london summit of april 2009 and out in place. however, there is still scope for improvement and further work is currently being done to improve global financial safety nets. in their meeting in busan earlier this month, finance ministers and central bank governors of the g20 have “ acknowledged a need for national, regional and multilateral efforts to deal with capital volatility ”. a financial safety net experts group has been set up to work on the issue. the reform of financial regulation the financial crisis as taught us some very hard lessons. while there are many causes to the crisis, it is clear that it forces us to reconsider the way we regulate and supervise the financial system. that is what we have been doing since the november 2008 g20 meeting. we entered this crisis with many unregulated entities playing a major role in the financial system. there were, therefore, huge “ black holes ”, including what has been called a “ shadow banking system ” where most of the excesses of securitisation took place. the g20 has fostered coordinated efforts by industrialized and emerging countries alike to bring most important financial actors under the umbrella of supervision, with rating agencies and hedge funds receiving a larger degree of attention. beyond these actors, the

reflecting strong saving - investment gaps : to many observers, household saving was strikingly low in the united states, while emerging asia was characterized by a “ global saving glut ”, in the words of chairman bernanke. these global imbalances have adjusted markedly in the wake of the financial crisis, but this rebalancing has been mostly cyclical and the issue remains. let me now turn to the third important keyword of this session, the g20 road map. with the intensification of the crisis, it has become obvious that the g20 was the right, – because the most legitimate – forum to prepare the policy response. and the g20 fulfilled the most optimistic anticipations as it reacted promptly and strongly to the crisis. beyond this, the g20 has also agreed on an ambitious policy agenda, aiming for the long run. the g20 roadmap does not only aim at one particular aspect of the global economy ; it is very encompassing. one aspect of it is macrorebalancing, another is on financial regulation and global financial safety nets. the g20 agenda is focused on crisis prevention by coordination in order to avoid, or at least dampen overheating and boom / bust cycles. how are these issues related? first i will briefly tackle the important question of the link between the financial crisis and global imbalances. second, i will go through the main implications of this link and outline the key features of the policy agenda of the g20. in this second part i will mostly focus on the so - called “ g20 framework for a strong, sustainable and balanced growth ” and on financial safety nets. in the last section i will focus on financial regulation issues more specifically. why and how do the financial crisis and global imbalances interact? an overwhelming body of research has established the clear relation between global imbalances and financial issues, some of which were behind the financial crisis. indeed, global imbalances were not just the result of cyclical factors, such as business cycle fluctuations, changes in oil and other commodity prices, etc. they were also, and to a large extent, the result of deeper, structural factors, as illustrated by the link between global imbalances and asymmetries in financial development. ricardo caballero focuses for instance on the notion of asset shortage : as safe financial assets were not readily available in some regions of the world ( emerging asia noticeably ), net savings in these regions were channel