key global financial markets, risk linked to activities of the internationally - important financial institutions, and the economic conditions and policies of the systemically - important economies. these are the areas of risk that have global - wide implications but are not being monitored sufficiently relative to their importance. third, the focus of the ewe at the country - level also needs to expand beyond detecting and avoiding local macro - misalignments, and to include assessment of the resiliency and robustness of the domestic economy and financial system to withstand large external shocks. the key point here is that, even with good policies, crisis can happen to an economy if the externally - induced factors overwhelm the abilities and the robustness of the domestic economy to cope with. and forth, the value of early warning is that warning leads to the needed actions being taken in advance. this means the ewe process should serve to facilitate actions to deal with the important risk and issues by the relevant parties. to serve this end, credibility and effectiveness of the ewe depends on appropriate degree of transparency of the structural models and its appropriateness to the context, whether national or markets, as much as its track record. in closing, let me summarize my points in the form of suggestions for the current efforts on the ewe. first, the focus of ewe should expand beyond detecting misalignments to include assessing vulnerabilities and robustness of the global markets, system, and institutions. second, ewe should be a two - level process. the global level process focuses on the systemically important markets, institutions, and economies. at this level, the fsb can play a role in ensuring consistent implementation of regulatory standards, as well as undertaking stress - testing to check the robustness and the resilience of the key markets, institutions, and system. likewise, ewe at the country - level, which can be a part of the normal article iv cycle, should have an additional focus on stress - testing the resiliency of the economy and domestic financial system to large external shocks. the shock scenario can be a common set of assumptions provided by the imf for all countries and draws on ewe findings at the global level. this will provide a good connection between the perceived global systemic risk and the abilities of the individual economies to handle them. lastly, ewe must be part of a global policy process, in that information of ewe must be used and if needed leads to timely policy action.

william j mcdonough : toward greater financial stability remarks by mr william j mcdonough, president and chief executive officer of the federal reserve bank of new york, at the bank of thailand, bangkok, 5 february 2001. * * * it is my pleasure to accept the invitation of the bank of thailand to speak to you tonight on how we can promote greater financial stability. in the wake of the asian crisis, authorities in the region have done much to promote increased financial stability, through a variety of measures to strengthen domestic banking systems and corporate sectors, and institute broader improvement in accounting, legal, and supervisory systems. thailand has taken a number of such actions, including efforts, among others, to close troubled financial institutions, attract significant private sector capital ( including foreign capital ) into the banking system, and improve the legal framework. macroeconomic policy adjustments, including the move to flexible exchange rates, have also furthered greater stability. these actions have helped countries recover from large - scale banking crises, and restore solid growth generally. that said, in thailand and elsewhere, the recovery is not yet complete, and much remains to be done. moreover, the restructuring and reform agenda will be challenged by slowing global and regional growth, which may contribute to already apparent signs of increasing reform fatigue within the region. in my view, asia stands at an important policy crossroads, involving a choice between pushing forward market - based reforms that are the only way toward long - term financial stability, or pursuing actions that provide short - term relief at the risk of threatening the hard - won gains of the last three years. the recognition that we have entered a new international financial environment has set in motion a range of efforts dedicated to strengthening the new international financial architecture. my remarks today will focus on what i believe can be done, from my perspective, to enhance domestic financial resiliency, within the context of these international efforts, and particularly on two essential building blocks : a strong financial system and a sound and stable macroeconomic environment. my comments reference the experience of east asia, but reflect lessons that are more broadly applicable. overview of recent recovery given the depth of the problem a little more than three years ago, the asian recovery on the whole has been remarkable, and has largely defied initial expectations that the crisis would cast a long shadow over regional growth prospects. the regional recovery has exhibited a solid " v " shaped trajectory supported by strong performance in the external accounts, and a pickup in domestic demand. banking sectors – faced with unprecedented crisis