complete collapse. at this point, another familiar amplifier of financial market stress – contagion – entered the picture. the collapse of terra put a spotlight on the adequacy of the backing of other stablecoins, particularly the adequacy of the real economy reserve assets backing the largest stablecoin, tether, which suffered significant outflows and, on several crypto exchanges, broke its peg to the dollar – meaning many coinholders were not able to redeem at par. a further example is the inherent risk that comes with leverage – a familiar one given its role in many financial crises. leverage is a powerful tool in financial markets, but leveraged positions can greatly amplify losses when asset prices move against investors, driving fire sales of assets and self - reinforcing downward price spirals. in recent years, we have seen the small but growing development of exchanges and other mechanisms in the crypto world, like defi platforms, which have given investors – retail and wholesale – the ability to take very highly leveraged positions. as crypto asset prices began to fall, this has led to large margin calls and automatic liquidation mechanisms – a feature of some protocols designed to protect against risk – that further amplified price falls. we have seen a range of crypto funds taken down by these effects ; one of the biggest has been here in singapore with three arrows capital filing for bankruptcy last week. i could mention other examples – risks that arise from weak governance for example, or the lack of transparency and understanding of investor rights [ 4 ]. but the basic point is the same : new technology does not change old risks. the second lesson i take from the crypto winter is that regulators need to get on with the job of bringing the use of crypto technologies in finance within the regulatory perimeter. or to put it the other way around, the lesson we should not take from this episode is that ‘ crypto ’ is somehow ‘ over ’ and we do not need to be concerned about it anymore. i should note at this point that even with the recent collapse crypto assets and crypto markets have not posed a systemic risk, though i recognise of course that this of is little comfort to those nursing substantial losses. that is not in itself a surprise ; regulators, myself included [ 5 ], made clear, when crypto reached its highs last year, that it was not yet large enough or integrated enough into the rest of the financial system to be an immediate systemic risk

valuable policy tool. that is why basel ii is so important. but systemic crises do not always emanate from capital inadequacy. the first indication of trouble ahead may well come from a completely different area. what i am talking about is the question of liquidity. and my observation here is that we would be advised to give more thought to the underlying issues, risks, and mitigants which could be ingredients in liquidity problems. what are the drivers? what may cause liquidity to be withdrawn? to what extent could uncertainties, referred to a few moments ago, impact liquidity in unpredictable ways? what machinery / measures can best be devised to ensure that liquidity will continue to be available in times of stress? and, in the face of attempts to improve the resilience and efficiency of market infrastructure ( for example, clearing and settlement ), how will changing practices and perceptions affect the drivers of liquidity? this is, i feel, an area where standards and principles could be further developed which engender both the best practice understandings of the private participants on the one hand, and the interface with public policy imperatives on the other. conclusion basel ii has been steered to this point of take - off for the hugely critical area of capital adequacy. i would identify four challenges for the next stage. first, to achieve the successful implementation of basel ii by banks and regulators across the globe. second, to ensure that mechanisms exist to update it in the light of evolving best practice. third, to give thought to whether analogous agreements would be appropriate in securities and insurance. and, fourth, to ensure that the scale of work on capital adequacy issues does not cause us to overlook the importance, either of liquidity management, or the development of a more robust market infrastructure in the maintenance of financial stability.