additionally, the basel committee on banking supervision recently proposed revisions to the existing pillar 3 requirements of basel ii, which aim at helping market participants to better understand a bank's overall risk profile, comprising, for example, requirements to disclose involvement in off - balance - sheet vehicles. in my view, these steps are essential for enhancing transparency in the financial markets. hedge funds – let me now come to a branch that has not been the core of the financial turmoil but has still played a significant role in the course of the crisis : hedge funds. although the direct credit exposure of financial institutions to hedge funds seems to have been relatively modest, hedge funds ’ activities, such as sudden large scale liquidation and the influence on market price dynamics and market liquidity, have posed an indirect risk to core financial institutions and the broader financial system. furthermore, the strong growth in the hedge fund sector has been one manifestation of the “ shadow banking system ” that has contributed to the overall high leverage and the vulnerability of the global financial system. hedge funds are prone to price and liquidity shocks due to their usual combination of leveraged positions and short - term financing. this underlines the relevance of initiatives for containing stability risks resulting from the failure or the collective behaviour of hedge funds. there are two basic channels for reducing potential macroprudential risks associated with hedge funds if direct regulation is still regarded as an inappropriate measure. the first is to strengthen the risk management of the prime broker, which has been recommended as the main instrument over the past few years. however, recent events have clearly demonstrated that authorities should not rely solely on the risk management of the prime brokers to contain potential risks. therefore, this indirect approach should be combined with a second channel : strengthening market discipline through higher levels of transparency and disclosure. the bundesbank has been calling for progress in these areas for some time. as hedge funds operate in global financial markets, only a global initiative will effectively deal with the international dimension of this issue. therefore, the bundesbank greatly appreciates the fact that the g20 has explicitly asked the hedge fund industry to bring forward proposals for a set of unified, self - regulatory best practices building on several initiatives launched in 2007 and 2008. i am convinced that this is a suitable way to strengthen transparency and market discipline as well as the internal management procedures of the hedge funds themselves. however, the devil is in the detail and i believe the following points to be crucial. the best practices should include an adequate disclosure framework, particularly

andreas dombret : international coordination to enforce regulatory reform speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the salzburg global seminar “ financial regulation – bridging global differences ”, salzburg, 16 august 2012. * 1. * * introduction ladies and gentlemen, to cut to the chase : international collaboration between regulators has never been so challenging – and yet never has collaboration been so important. let me explain. 2. financial sector reform – time to slow down? the regulatory community is currently facing enormous pressures. the sovereign debt crisis has given a fresh impetus to calls to water down or delay regulatory reform. some argue that the ongoing uncertainty in financial markets and the weak global economy are good reasons to ease up on regulatory pressure. they say the financial sector is being asked to do too much too soon, and regulators should slow the speed of adjustment. yet i see it as more a case of “ too little, too late ” : if there is a reproach to be made, it is that regulatory progress has not been faster. the sovereign debt crisis, which is not least driven by systemic problems in some countries ’ banking systems, underscores the urgent need to make the financial system more resilient. relying on financial markets ’ self - regulation will not do, i am afraid. we must deliver on our promise and extend regulation and oversight to all systemically important financial institutions, instruments and markets. to deliver this promise, close international collaboration is essential. given the truly global financial system, “ going it alone ” is no longer a viable option. it will only lead to the migration of business and to regulatory arbitrage, undermining not only the integrity, efficiency and orderly functioning of financial markets, but ultimately undermining financial stability. 3. international consistency versus one - size - fits - all the crisis has clearly demonstrated that countries cannot successfully regulate their financial markets and firms in isolation. capital flows do not stop at geographical borders ; quite a number of financial institutions operate globally. therefore, an internationally coordinated regulatory response is imperative. to be successful, reforms must be implemented at least at the major financial centres. international cooperation is not an end in itself, however. instead, i suggest to measure its value by the extent to which it provides financial stability. while adopting a robust, common set of rules is essential, it is neither practical nor desirable to fine - tune all details of financial regulation internationally. as the characteristics of each country