opaque and complex financial products 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 securitization took place. regulation was not reaching far enough and when it applied it did not always ensure an adequate risk capture. the g20 has fostered coordinated efforts by industrialized and emerging countries to bring the most important financial actors under the umbrella of supervision, while rating agencies and hedge funds were receiving closer attention. beyond these actions, the g20 and the financial stability board ( fsb ) have focused their efforts on the systemic importance of certain institutions or markets, due to their size or their interconnection. one example is the necessary reform of otc derivatives markets that has gained traction with a clear roadmap designed by the g20. efforts aimed at integrating these markets into regulated and supervised market infrastructures are an essential policy response to monitor the risks accumulated in these markets. 21. the second problem highlighted by the crisis is the procyclicality generated by the interplay between prudential and accounting rules. some of this procyclicality can be trimmed through prudential regulation. i therefore strongly believe that our first line of defense against procyclicality should be the accounting framework. we, at banque de france, firmly support the current focus on reducing the scope of mark - to - market accounting and moving from an incurred loss model to a forward - looking model for provisioning. we expect that accounting standards will converge but this should not come at the expenses of these two dimensions. 22. thirdly, the crisis also raised questions about the nature of our regulatory frameworks. there is a trend towards complementing the micro - prudential supervision with macro - prudential oversight. in europe we are putting in place a systemic risk board at the european union level that will combine expertise from central bank governors and supervisors in charge of banks, insurance companies and securities markets. in the us, the financial stability oversight council is also a landmark in the overhaul of the financial supervision architecture. 23. soon, the european council will grant the ecb a special assignment regarding financial stability with the responsibility to run the european systemic risk board. this should not be seen as constituting an additional objective of monetary policy. rather, the creation of this board does not change the clear allocation of responsibilities enshrined in the treaty. the

up foreign exchange reserves. by doing so, public entities essentially substitute themselves to private agents in managing and allocating part of the nation ’ s net foreign savings. most likely, their choices and preferences will be different from those of the private sector and, therefore, their intervention would alter the country ’ s external position, tilting it towards holding foreign assets in liquid instruments. the first three factors – information asymmetries, exchange and sovereign risk – account for the well known “ home bias ” exhibited by most investors and asset managers who tend to privilege their own domestic assets when deciding on portfolio allocation. they also explain why, until recently, most emerging economies had to live with the “ original sin ” of not being able to issue public debt denominated in their own currency. because information asymmetries have been reduced through the development of modern securities markets, emerging economies have somehow freed themselves from this constraint, although less than often assumed ( hausmann and panizza, 2010 ). the last two factors – differences in financial development and public interventions – may be more pervasive and significant. together, they have a major impact on the composition and direction of capital flows, as well as the level and persistence of global imbalances. global imbalances in the 21st century current account imbalances have increased both in amplitude and durability during the last decade. in fact, they have become a permanent characteristic of our economic environment. this, by itself, may be a consequence of increased financial integration and greater reallocation of savings across national borders. since, at the same time, real long term interest rates have kept to historically low levels, the situation has been characterized, as a “ saving glut ” ( bernanke, 2005 ), a concept which has come to dominate our thinking about the international economy. however, for the saving glut to result in growing imbalances, net savings have to be more and more asymmetrically distributed across nations. in addition, for more than a decade now, capital has been continuously flowing “ uphill ”, i. e. from poor to rich countries with current accounts surpluses in emerging economies mirrored in growing deficits in the us. this is one of the most salient and puzzling features of modern economic history and has attracted a lot of attention. some explanations focus on the domestic drivers of private saving behaviours in both emerging and advanced economies. cyclical factors, such as productivity shocks,