) and the international association of insurance supervisors ( known as iais ). the purpose of the institute is to provide training to senior supervisors and other supervisory staff in the application of basic supervisory principles to their national supervisory systems. the job of senior supervisors in the emerging markets is an immensely challenging one, requiring negotiation, management and leadership skills, in addition to technical supervisory skills. the institute, by bringing together key policy - making officials in central banks and supervisory agencies through high - level seminars, serves the dual purpose of sharing expertise and developing and deepening the relationships among supervisors globally. the institute will hold courses not only in basle, but on a regional basis as well. the institute will act as a clearing house for the coordination and provision of technical assistance by central banks and supervisory bodies. we also must work closely with the imf and the world bank. these institutions put people in virtually all of the world ’ s countries to evaluate candidly the macroeconomic and financial climate and supervisory policies and practices. in an important development for the furtherance of the core principles, the imf and world bank are using the core principles as the benchmark for evaluating supervisory regimes around the world. this is an effort that the basle committee plans to support not only through continued work on the core principles and the compendium, but by providing expertise and supervisory resources to supplement and advise imf and world bank staff. the members of the basle committee in many cases have the staff with the deep expertise to help emerging markets supervisors with the application of the principles in their national context and in light of various obstacles. the imf and world bank have expressed their desire to bring more of that expertise to bear in their efforts, and we have begun discussions on how to accomplish that most effectively. in addition, we believe that first - hand observation of the practical issues in implementation will suggest what further elaboration and precision would be most useful to the core principles, and what additional research and papers, programs by the institute for financial stability or specific technical assistance could supplement them. our goal is to keep the core principles relevant, incisive and implemented by supervisors globally. in addition, we in the broader financial supervisory community must set thoughtful goals for ourselves as we manage our individual agendas. the problems that have beset many countries in asia, russia and other regions and countries are not confined to the banking sector, although that may be the largest part of the financial sector. together with iosco and the iais,

lags movements in market prices and recognition of credit issues. in trading agreements, for example, gaps between the amount owed by the customer and the amount of collateral pledged develop surprisingly quickly. one costly solution is to hold large amounts of excess collateral, but that is most often unacceptable to the counterparty. similarly, when the collateral is real estate, equities or high - yield securities, a gap can open up between the amount owed and the value of the collateral whenever the price of the collateral declines. we have seen both problems in the current turmoil. these questions of credit analysis and risk control are an integral part of the current work of the basle committee on credit risk management. the starting point for that work is a paper describing the framework for traditional credit risk management by banks. that framework can then be used to consider how changes in the financial markets affect the credit process. in addition to the issues i ’ ve described, this work will look at the impact of other developments such as credit risk models, credit derivatives and securitization. one goal of this work is to identify areas of risk management which are improving, and those which may need strengthening, especially potential problems in the internal controls that prevent and detect breakdowns in risk control. the second question, how the larger role of capital markets activities is affecting liquidity risk, also involves a reconsideration of the guidance the basle committee developed a decade ago. the recent market turmoil has been especially hard on emerging market banks which funded domestic currency assets with unhedged foreign currency liabilities. the liquidity risk of concentrations on the asset side of the balance sheet has a different significance when assets are sold not only to raise cash but also to conduct portfolio management, which assumes generally liquid markets. moreover, we are seeing new liquidity needs arising from the changed funding practices of customers. for example, we are seeing instances of customers who had funded themselves largely in the capital markets in recent years turning to the banking system for funding in the current, stressful environment. these observations and issues, which also have been made by others, most recently the willard group, have led us to add liquidity management to the near - term agenda of the basle committee. the third question involved the role that uncertainty as a result of structural change in the financial system may be playing in recent market developments. one lesson from this turmoil is how difficult it is to understand the linkages between markets and economies in light of the changing patterns of financial and