gives the central bank a much clearer picture of the economic reality that is behind the numbers visible in the books of banks. this information facilitates its role in safeguarding financial stability and creates a special advantage in spotting early warning indicators of financial crises and potential situations of economy - wide financial distress. moreover, as a part of the eurosystem central banks are integrated in an already functioning network of national and supranational institutions. such a network is of decisive importance in the light of the structural change in european financial markets that already has taken place or is likely to come in the near future. international financial system : transparency and crisis prevention the integration of international financial markets is not a new phenomenon. what is unprecedented is the short - term nature, the high turnover and the many financial market agents. this evolution has been actively encouraged by public policymakers and academics, alike. in addition to an improved international allocation of capital, internationally integrated markets are thought to provide a welcome discipline to domestic policymakers. the stability of financial market rests, in essence, on three pillars : institutions, market participants and infrastructure. a financial system is only as strong as its governing practices, financial soundness of its institutions, and efficiency of its market infrastructure. installing and using sound governance practices is a shared responsibility of the market participants and the regulatory agencies. indeed, recent experiences with systemic or significant financial sector crises have underlined the importance of good governance on the part of regulatory agencies. in nearly all financial crises of the past decade venezuela, mexico, east asia, russia, ecuador and turkey - political interference in the regulatory and supervisory process, weak regulations, inefficient supervision and lack of public sector accountability and transparency, have been identified as contributing factors to the depth and size of the systemic crises. many of the major initiatives the international community had been taking, occured in reaction to financial crises in the 1990s. based on this, policy - makers have been trying to become more forwardlooking to avoid potential difficulties. in particular, three areas of concern have emerged : first, many of the international fora are issuing internationally applicable “ core principles ” or “ standards of best practice ”. these should encourage improved practices in the economic and financial policies not only of emerging markets but industrial countries alike. some noteworthy progress has been made in this area and many initiatives are emanating from the imf. the main vehicle for evaluating regulatory governance practices in the overall context of macroeconomic stability is the joint imf - world

an improving economic picture, it is important to recognize that downside risks to growth remain. the fomc will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks. finally, i would like to say a few words about the federal reserve's recent actions to protect consumers in their financial transactions. in december, following up on a commitment i made at the time of our report last july, the board issued for public comment a comprehensive set of new regulations to prohibit unfair or deceptive practices in the mortgage market, under the authority granted us by the home ownership and equity protection act of 1994. the proposed rules would apply to all mortgage lenders and would establish lending standards to help ensure that consumers who seek mortgage credit receive loans whose terms are clearly disclosed and that can reasonably be expected to be repaid. accordingly, the rules would prohibit lenders from engaging in a pattern or practice of making higher - priced mortgage loans without due regard to consumers'ability to make the scheduled payments. in each case, a lender making a higher - priced loan would have to use third - party documents to verify the income relied on to make the credit decision. for higher - priced loans, the proposed rules would require the lender to establish an escrow account for the payment of property taxes and homeowners'insurance and would prevent the use of prepayment penalties in circumstances where they might trap borrowers in unaffordable loans. in addition, for all mortgage loans, our proposal addresses misleading and deceptive advertising practices, requires borrowers and brokers to agree in advance on the maximum fee that the broker may receive, bans certain practices by servicers that harm borrowers, and prohibits coercion of appraisers by lenders. we expect substantial public comment on our proposal, and we will carefully consider all information and viewpoints while moving expeditiously to adopt final rules. the effectiveness of the new regulations, however, will depend critically on strong enforcement. to that end, in conjunction with other federal and state agencies, we are conducting compliance reviews of a range of mortgage lenders, including nondepository lenders. the agencies will collaborate in determining the lessons learned and in seeking ways to better cooperate in ensuring effective and consistent examinations of, and improved enforcement for, all categories of mortgage lenders. the federal reserve continues to work with financial institutions, public officials