##es. non - centrally cleared contracts should be subject to higher capital requirements. we ask the fsb and its relevant members to assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse. ” bis central bankers ’ speeches been distant from the attention of the financial stability authorities, but their integrity has long been a focus for securities regulators. they are especially important in economies where a significant proportion of the intermediation of savings / investment occurs via capital markets rather than via bank balance sheets. if those core capital markets are not resilient to shocks and, crucially, if substitutes are not readily available, disruptions could materially impair the supply of credit and risk - capital to the economy, with macroeconomic and other welfare costs. equity and high - grade corporate bond markets probably pass that test in a number of developed economies. in the usa at least, some securitisation markets were probably significant too. when the securitisation markets closed, they had become so big in the usa that it was not realistic for that part of the credit system to be reintermediated by the us banking system in short order. even if the banks had been strong, they would have needed to raise a lot more capital to expand their balance sheets. it is, of course, natural that policy has focused on those markets – securitisation and some otc derivatives – that featured prominently in the crisis. but we do need to develop a framework for identifying more generally which markets really matter to stability. that means being attentive to exchange - traded derivatives and to cash markets, whether on or off - exchange, and perhaps especially to the short - term financing markets. where firms are concerned, we have learned to focus on maturity transformation and leverage. for markets, it is, perhaps, not quite so straightforward. in the case of intrafinancial system markets, we are interested in whether they produce chains of cumulative maturity transformation and leverage, and how transparent that is. with end - user markets, we are also interested in whether they are driven by strongly procyclical forces ; whether they are especially liable to generate assets whose risks are mispriced or obscure ; whether demand is dominated by leveraged investors and traders. we are interested in whether they can crater – becoming illiquid or even closing – under stress. and in whether there are ready substitutes. if not, intermediation can become

significant effects over time on behaviour and the structure of the financial system. that assumes that lessons from this crisis endure. but, of course, the most pernicious forms of myopia surely come out of prolonged periods of apparent tranquillity in markets and the economy. that is when everyone gets suckered into believing the world is a safer place than it is, with elegant theories and eloquent practical stories for why the world has really changed. which ultimately tips us from tranquillity to disaster. one of this university ’ s greatest twentieth century thinkers taught us that what counts as an argument – not just as a good argument, but as an argument at all – is not always firmly grounded. the deepest problem during the years in which a grave crisis is brewed is that those who see the signs are marginalised or literally not heard. what on earth are we to do about that? part of the solution must lie in the design of policy institutions. one reform would ask a dedicated and expert group to identify risks to stability and give them powers to address those risks that threaten the system or are leaving it vulnerable ; and, vitally, to require them to stick at that task year in - year out, even when everyone else would otherwise be losing interest, taking stability for granted. as adair said this evening, that is precisely what is going on in the uk through the creation of the bank of england ’ s financial policy committee. the first members were announced yesterday. this is a big reform. rather undermining my strictures to adair on his use of “ radicalism ”, i ’ ve described it a number of times as revolutionary. the fpc ’ s success ( or otherwise ) will not depend solely on its own ability to identify risks. rather we must ensure that the debate about stability – the flame if you like – never dies. for that reason, our accountability to the treasury select committee can help greatly through the public debate and commentatory that our appearances will stimulate. bis central bankers ’ speeches