the problems in risk management have made it clear that the modelling of bank risks will always remain imperfect. in interpreting capital adequacy requirements which are based on such risk models, we must therefore proceed with appropriate caution. this is particularly relevant in view of the new capital adequacy requirements that will also be introduced in switzerland next year. the main change under these requirements, known as basel ii, is that capital adequacy requirements will rely more heavily on banks'own risk assessments. bearing this in mind, the lesson learned last summer may well have come at the right time. this now begs the question as to whether – in addition to the complex, riskweighted capital adequacy requirements – other criteria, such as volume limits or the simple debt - equity ratio should not also be considered. the reason for this is that the higher this ratio, the greater the leverage effect of losses on the soundness of a bank. it is not that i intend to question the concept of risk - weighted requirements in any way. rather, it is my wish to possibly strengthen these requirements by introducing supporting measures. for example, compared with risk - weighted requirements, volume limits or the debt - equity ratio have the advantage that such key figures are basically very transparent and are not based on complex models. moreover, they calculate the only element that is relevant in a crisis, and that is the size of the buffer that a bank needs to absorb losses. third, it is a striking fact that, to date, hedge funds have not been a focus of the current crisis. to a considerable extent, this is attributable to a much improved management of counterparty risk in recent years. it is my view that banks should strengthen their risk management as regards their own refinancing decisions and risk allocation and not just with respect to external customers such as hedge funds. the kind of internal subsidising of refinancing costs for individual business areas observed in some cases creates false incentives. in future, the refinancing costs that a bank charges its internal risk centres should constitute an integral element of its risk management approach. to sum up, i would like to state that it is certainly true that the current situation in the credit markets is very serious. at the same time, i want to stress that, fundamentally, the earnings capacity of our international banks is high, thanks to their diversified business model, and this increases their resilience. in this respect, the measures

as the reserve - issuing country has the privilege of not being under much pressure to adjust to current account deficits, at least over the short and medium term. it is worth noting that part of keynes ’ goal in setting up the imf was to try to create symmetry between the need to adjust for both deficit and surplus countries. more recently, the question appeared under the perspective of global imbalances. this discussion highlights that current account surplus countries can forego, at least temporarily, the required adjustment by accumulating international reserves instead. the sustainability of these imbalances, and the extent to which they have contributed to the recent global financial crisis, is still under discussion. the question of the reserve asset has often been at the center of the debate. but as mark carney has recently argued, the adjustment mechanism may be more important than the choice of reserve assets. if adjustment were rapid, symmetric, and global, and if adjustment costs were fairly distributed amongst countries, we probably would not need to gather here today. unfortunately, this is not the world we live in now. historically, exchange rate flexibility has often been the answer. while it is not a silver bullet, it remains true that adjustment through the exchange rate is usually faster, and in the end less costly than adjustment through prices and wages. at the same time, of course, discontent with what is often perceived as excessive exchange rate volatility has been an important source of dissatisfaction with the present international monetary system. what constitutes excessive exchange rate volatility, and whether domestic policies or the international monetary system are at the root of it, is a matter of legitimate debate. iii. the conference nearly twenty years ago, jacob frenkel made the following observation about the international monetary system : “ academics and policymakers have made numerous proposals for reform while, at the same time, the monetary system itself has been in a constant state of change ”. this points to another problem that any attempt to reform the international monetary system faces : the world economy and financial markets, and therefore the international monetary system never cease to evolve. today ’ s conference is organized around four panel discussions. they will focus on issues that are at the forefront of the current debate on shortcomings of the international monetary system. the first panel, chaired by axel weber, will discuss the predominant concerns about the present system. large global imbalances, volatile capital flows, and rapid reserve accumulation give rise to concerns about vulnerabilities. are they possible sources