that can be illiquid. the authorities then have time, where appropriate, to publicise any concerns so that firms can take action to prevent the risks from crystallising, and factor them into stress tests and scenario analysis. we provide such analysis regularly in our financial stability review. and were a crisis to develop, an understanding of the ‘ systemic conjuncture ’ is also required to enable the authorities to assess on a continuing basis the likely systemic impact, and to choose an appropriate policy response. as well as information exchange, strong co - ordination of decision making between central banks, regulators, and ministries of finance, is likely to be essential for effective crisis management. this is true both at a domestic and an international level. a first step is for the relevant national authorities to have clear, well established, processes for decision making and for communicating externally, and to ensure that these processes are well understood by all parties. in the uk, hmt, the bank and the fsa have a published memorandum of understanding ( mou ), established in 1997, which sets out a high - level framework for co - operation in the field of financial stability. although there is no such agreement at an international level at an equivalent level of detail, a ‘ memorandum of understanding on co - operation between banking regulators, central banks, and finance ministries of the european union in financial crisis situations ’ was signed earlier this year. it is fair to say, however, that this represents only a first step. finally, if the authorities decide to take measures to mitigate the systemic impact of a crisis — for example through emergency liquidity injection of one sort or another — it is vital that the central bank, supervisor and ministry of finance act, and are seen to act, in a decisive and joined up way. in the uk, the mou provides for strategic management of a crisis at meetings of a ‘ standing committee ’, the members of which are senior representatives of hmt ( who chair the meetings ), the bank, and the fsa. liquidity became fragile, then, all else being equal, firms would be more vulnerable to liquidity problems. this argues for the authorities in all jurisdictions to review whether the liquidity standards that they currently impose are still appropriate, given the nature of firms and their activities. but globalization also means that there is a case to look again at consistency of liquidity standards across jurisdictions. as central banks or regulators we are each seeking to achieve a high level of soundness in

##ity crisis, there is feedback from the actions that a firm takes to meet liquidity needs — selling assets for example — to the market ’ s perception of its solvency and hence to the size of those very liquidity needs. furthermore, it is arguable that buffers should vary to some extent with the level of risk that a firm brings to the financial system. firms that, for example, are relatively large or opaque, or have more extensive connections to other parts of the financial system might be expected to meet higher standards under such a regime. the impact of liquidity standards on a firm ’ s relationship with its central bank, both in normal times and in crisis, also has to be considered. in many countries, the uk included, firms need to obtain central bank money in order to make payments to other banks in the real time gross settlement system and to settle delivery versus payment securities transactions. the ability to obtain central bank money — liquidity — depends at all times on having access to sufficient quantities of high quality collateral. and such collateral is of course amongst the best forms of insurance against liquidity problems. so the extent to which prudential liquidity standards require firms to hold collateral, and the precise way in such requirements are calibrated, have a direct impact on the economics of their participation in payment systems and in central bank operations to implement monetary policy. the structural and conjunctural developments that i described earlier are most material to these questions. on calibration, for example, greater inter - linkages between firms mean that the external costs of failure — the costs that are not borne by the firm itself and are therefore unlikely to be taken into account in its own planning — are greater. if markets on which firms now rely for some of their we also obtain a great deal of additional information in the course of our own market operations, through our involvement in payment systems and other infrastructure, through our counterparties and contacts, and in other ways. intelligence of this sort allows us to understand the environment — the products, techniques, and markets — in which firms operate and how they and the markets in which they trade may behave in times of stress. it therefore supports analysis of how stress might spread and how the authorities can most effectively respond ; and it helps to identify the appropriate channels for communicating this response. but analysis from intelligence can also provide early warning of symptoms of actual or incipient stress ; for example, a high degree of leverage coupled with crowded trades in markets