2010 ) : calibrating regulatory minimum capital requirements and capital buffers : a top - down approach. risk assessment models upon which the risk - weighted capital approach is based are most certainly prone to error. for these reasons, switzerland decided to introduce a leverage ratio for the big banks as far back as 2008. 8 another way of making regulation more robust is by ensuring the diversification or complementarity of measures. once again, the leverage ratio is a good example of this, since it has to be complied with along with the fulfilment of risk - weighted capital requirements. it is harder to simply manipulate this kind of system through regulatory arbitrage. the benefit of complementary measures can also be strikingly illustrated using the example of the swiss proposals aimed at mitigating the tbtf problem. the recommended policy mix represents a combination of complementary measures relating to equity, liquidity, risk limitation and organisation. more equity and liquidity must guard against insolvency on the part of systemically important institutions. these measures can support and supplement one another and, if necessary, counterbalance individual weaknesses. for instance, should the capital buffer prove insufficient and a crisis situation nevertheless arise, a rescue of systemically important functions can be facilitated by means of preparatory organisational measures involving improvements in the resolvability of banks. integration in the international environment, yet accounting for national circumstances the fourth criterion is that the decisions on the measures that are finally taken must ultimately be embedded in an international framework while simultaneously taking account of specific national circumstances. at international level, in particular, agreements on regulatory standards are based on negotiations in which the interests of different countries at different stages of development, with specific financial market structures have to be reduced to a common denominator. often these interests diverge significantly. a uniform definition of capital, the same risk weighting for assets around the world and the same calculation for the leverage ratio are extremely important. only by applying the same definitions worldwide, can the soundness of individual banks be compared internationally. it avoids the possibility of financial institutions engaging in arbitrage through the establishment of complex cross - border legal structures. these international decisions are also far - reaching in their importance because they predetermine the options and limitations faced by national regulators. however, implementation at national level is ultimately decisive. in particular, it is the deciding factor as far as financial institutions in any one country are concerned. in this respect, an international minimum standard cannot suffice when it comes

7 ). this reflects the better lending decisions in earlier years. graph 7 our common external interests of course, good domestic policies can do only so much to ameliorate the impacts of very adverse international developments. both economies have slipped into recession as international forces have taken hold, albeit through differing chains of causation. but for the reasons articulated above, there are good grounds to think that both countries should be in a relatively good position and well placed to take part in a renewed international expansion. it is too soon to say this is beginning yet, though developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year. that said, most observers think that the early part of any new global expansion will be characterised by pretty slow growth. even with the uncertainty over the near - term global outlook, however, it makes sense to look forward. so in the final part of this address, i should like to talk about the common interests we have at stake in the way the international community responds to the crisis and shapes the next expansion. first among these is the openness of trade and capital flows. the extent to which trade flows slumped late last year perhaps gives a sense of what could happen were trade barriers to go up. everyone would suffer, and badly. this is fully understood at an intellectual level around the world. yet we know that in times of domestic economic difficulty, the pressures for protectionism increase. countries like ours need to keep making the point that trade is not a zero - sum game ; it is collectively a positive - sum process that stimulates innovation and productivity, increases global growth and raises living standards. secondly, the continued development of many emerging economies will enrich the opportunities for firms and individuals in economies like ours over time. but it will be sensible for emerging countries to have strategies that rely less on the absorption of consumer products by the developed world, at least for some years. that will involve, roughly speaking, more consumption and investment at home, lower trade surpluses and a step back from very large outflows of capital to the developed world. this is actually a rational choice for emerging market countries. but a lesson many countries took from the asian crisis was that a strategy such as that was dangerous, because the rules of international engagement did not provide adequate protection in times of difficulty. their response was the build - up of reserve assets in the period since 1998 – a costly form of international self - insurance, involving sending