2008, the tranches rated by moody ’ s that were downgraded was close to thirty six thousand, where nearly one third of downgraded tranches bore the aaa rating. this is a complex issue, especially due to the prevailing incentives in this sector. a recurrent area of criticism on the incentives side is the simultaneous role of advisor and issuers of ratings. but the spectrum of potential conflict areas could be broader, and thus more efforts must be devoted to understanding in detail the operation and linkages of this industry. final comments the subprime crisis has opened a debate on the risks of financial innovation. it reminds us that higher levels of sophistication do not guarantee the normal operation of the financial system. a reasonable level of regulation, control and monitoring is required. i think we should move forward in innovation processes, as they are positive, but we must move forward with caution. it is important to implement policy changes gradually to provide an adequate level of information and transparency that will ensure an adequate assessment of the risks involved. it is also crucial to review in detail the incentives and potential conflicts of interest arising from the new tools and processes. another aspect that needs to be addressed is the role of adequate control systems and financial risk management. a proper system of financial risk control and management must start by defining policies at the highest level, the board of directors. it also requires the involvement of senior management in tracking and monitoring risk. and, ultimately, it needs the development of an organizational culture that is capable of properly combining the goals of profitability and leadership with risk sensitivity. in this regard, a topic that is central to the discussion of financial reforms is the overall structure of incentives of financial intermediaries. i believe this is an issue that all players in the financial system must follow with care. as a result of the current problems, we will observe more regulation in financial markets and everyone, even those of us not at the center of these difficulties, must remain watchful. problems of moral hazard, transparency and new ways to meet the requirements of central banks to provide liquidity are leading to a review of regulatory frameworks at the international level. we must be aware that more regulation leads to the search of ways of avoiding them, which may end up threatening financial stability. this last dimension must be taken into account in the analysis and regulatory proposals, which obviously introduces an extra element of complexity in this area. thank you. references allen f. and d. gale ( 2000 ).

b ) liquidity ; and c ) rating agencies. accounting methods and valuation at the onset of the financial turbulences, there were strong concerns on how precise was the information reported by banks, how large were the losses, and who was bearing these losses. this uncertainty was a critical factor in the shutdown of key financial markets. the international accounting standards board ( iasb ) and the financial stability board ( fsb ) have been working and promoting recommendations on accounting and disclosure standards for off - balance - sheet investment vehicles, and fair value methods, among others. however, these “ information ” requirements by themselves are not enough, and other measures could be necessary, such as forcing originators and other agents to hold part of the risk of the assets created. liquidity the current financial turbulence has highlighted that for the banking sector liquidity considerations are as relevant as solvency issues. in spite of this, most of the attention in banking regulation has been focused on solvency ( rochet, 2008 ). however, some steps have been taken in this direction by the bis in terms of contingent liquidity demand and related triggers associated with off - balance - sheet positions ( bis, 2008 ). the literature has identified several elements that could generate externalities related to liquidity, and therefore could justify some degree of regulation, where the main arguments are linked to asymmetric information and market incompleteness. 1 moreover, policies put in place by central banks after september 2008 have made moral hazard concerns for liquidity management more pressing. nonetheless, there are still open questions as to the kind of regulation to reduce the potential consequences of the imperfections in this area. there are no straightforward answers on this matter. some pending questions are : should a capital charge be put in place for liquidity allen and gale ( 2000 ), freixas and rochet ( 2000 ), and morgan, ( 2002 ). risk? is it necessary to impose an additional liquidity requirement to intra - day liquidity needs? should central banks act as the lender of last resort in this market? credit rating agencies the role played by risk rating in the subprime crisis is also an important corollary to the current crisis. to illustrate why some authors have gone as far as calling this “ the credit rating crisis ” ( benmelech and dlugosz, 2009 ) consider that before the crisis more than half of the structured finance securities rated by moody ’ s carried an aaa rating and, during the period 2007 -