them from playing their beneficial role in today ’ s markets. so far, the common view amongst supervisors is that the first concern posed by hedge funds is best addressed through indirect supervision, via their regulated counterparties. for that reason, many of the regulatory initiatives since the near - collapse of ltcm were, and still are, aimed at improving the counterparty risk management practices at regulated institutions. effective risk management depends, however, on reliable and timely information. supervisors have therefore also made recommendations to bolster market discipline and improve information flow between market participants. in fact, much has been achieved to date in containing hedge fund related macro prudential risks. yet, in a continuously changing financial environment there is no room for complacency. new categories of financial products have rendered the credit relationship between regulated institutions and hedge funds more challenging. in addition, the recent protracted period of abundant liquidity and low volatility has increased the exposure of hedge funds to riskier assets. finally, the attractiveness of doing business with hedge funds is a constant temptation for counterparties to relax their conditions, such as the haircuts applied to collateral. hence, there is a continuous need to assess ongoing market developments and address any weaknesses in counterparty risk management and market discipline. indirect supervision, although essential, will not mitigate all the risks associated with hedge funds. for instance, given the importance of hedge funds in some markets, any abrupt liquidation of their positions could have implications for market stability. in addition, indirect supervision may not be in a position to address the concerns related to shareholder activism i mentioned earlier. in order to address these concerns, additional measures may have to be considered. i hasten to add, however, that tight regulation of hedge funds – such as we know for banks – is undesirable. in order to preserve the beneficial role that hedge funds play in today ’ s market, i would prefer a lighter approach. greater, market - driven transparency could provide markets and firms with a better sense of the build - up of large, concentrated positions or crowded trades. of course, i also recognize that there are limits to providing data, if only given the speed at which hedge funds ’ positions change. secondly, there should be better access to information on shareholder positions and strategies, including those of hedge funds. such an approach could limit risks of market integrity and behaviour that does not consider the stability of financial firms and the financial system as a whole as a precondition. improved disclosure

financial system. and we do this by relying on the powers of reason, logic, cooperation and data. in other words, by following the brothers von humboldt, friedrich von schiller, and johan wolfgang von goethe in sapere aude. so how do we go about that? 1 / 6 bis - central bankers'speeches to increase the resilience of the global financial system and to enhance financial stability, we rely on the fsb's financial stability surveillance framework. let me start by walking you through this framework, and then i will illustrate how we apply it. the fsb's financial stability framework is based on four guiding principles. first, we need to identify the vulnerabilities that may threaten global financial stability. i say'vulnerabilities'instead of'shocks'or'risks '. that is intentional. the pandemic is a shock. the war in ukraine is a shock. a rapid shift in financial market conditions would be a shock. shocks are by definition unpredictable – so they don't offer a solid starting point for financial stability policy. risk – that is the risk of a shock large enough to have a financial stability impact – is similarly very difficult to assess. vulnerabilities, on the other hand, can usually be measured, at least to a certain extent. think for instance about the build - up of imbalances, like a rise in leverage during a credit boom. and so, they do offer a starting point for financial stability policy – policy that is aimed at reducing these vulnerabilities. through this approach we can mitigate potential systemic disruption, once a shock hits our global, highly interconnected financial system. and so, in the spirit of alexander von humboldt, who measured and mapped large parts of the world, we, in turn, try to map and measure global vulnerabilities – rather than the shocks that may or may not materialise. second, once mapped and measured, we monitor these vulnerabilities, taking into account the potential interactions between them. we also deploy a forward - looking perspective, by considering emerging vulnerabilities in addition to current ones. it is better to prevent vulnerabilities from growing in the first place, rather than having to reduce them once they already pose a global threat. our third guiding principle is that we recognise the differences among countries. the fsb's membership reflects the diversity of our global financial system, with members from both emerging market and