increasing the automation of this product. however, these same institutions must also make selective investments in the newer and more visionary retail payment mechanisms. i am not in a position to determine for each private - sector firm how to balance these two goals. managers and directors of these businesses are closer to these decisions and bear greater direct responsibility for the success of the institutions they guide. however, all firms interested in participating in the payment system will have to recognize explicitly the challenge of maintaining the existing system while building the new one. lessons for public policy what are some of the lessons for public policy that we have learned from our experience with electronic payments since the 1960s? our general goals of fostering a safe, efficient and accessible payments system have not changed. however, one broad lesson is that in a dynamic economy, markets need to play a key role in guiding the development of infrastructure, including mechanisms like payments systems. this means that innovation and competition will be central to the future development of the payments system - as they are in other areas of the economy. of course, questions of interoperability between different systems will probably need to be addressed by payments providers. policymakers for their part should aim to remove barriers to innovation that do not conflict with important public policies and should resist calls to limit competition. a second and related point is that successes and failures are bound to occur as the ultimate users of payments systems choose among competing options for making payments. the lesson for public policy is that it should not be built on a single product, system or vision of the future, no matter how compelling at the time. instead, policy should be flexible in a way that allows experimentation and change to take place, particularly in the rapidly changing world of electronic payments. a third lesson is that public policy should exercise restraint and resist calls for premature regulation. users face important trade - offs as they make choices about the use of new payment technologies among key attributes such as cost, convenience, safety and complexity. these trade - offs may even shift depending on the specific parties to a payment or its purpose. regulations typically make implicit assumptions about these important trade - offs, which may pre - empt adjustments by users and providers of the new technologies. even well - intentioned regulations can end up addressing the wrong problem or short - circuiting creative innovations. on the other hand, public policy will have to confront genuine and significant problems, when these become clear and are not self - correcting. a final lesson should temper the thinking of both policymakers and

for the fed. in each case, there is ongoing discussion about what value the previous shareholders can reasonably expect to get from the resolution. the prospect of legal action is, of course, a potential further complication. all this illustrates that the role of lender of last resort is actually quite challenging in the modern world. thankfully, observations in the time series of large financial near failures are few, and recent ones have been in other countries. but when they do occur, it is important to learn as much as we can from them. central banks and supervisory authorities around the world are seeking to do just that. no doubt very thorough evaluations and recommendations will appear in due course. at this point, i would summarise the general lessons from the recent events as follows. first, well designed regular facilities that allow adequate access to central bank liquidity in times of pressure – either generalised or firm specific – are helpful in avoiding the authorities finding themselves in the position of needing to contemplate the extension of a loan of last resort. second, if firm specific assistance beyond the normal channels is required, the central bank has to have very quickly a clear idea of the solvency of the entity concerned, and of the quality of collateral available in order for the terms of any assistance to be set. a good deal of that information has to come from the prudential supervisor. where that is not the central bank itself, this means that an effective relationship between the central bank and the supervisor is essential. third, the government needs to be involved early on, for several reasons. apart from the fact that it owns the central bank and would therefore ultimately carry any risk the central bank might take on in these transactions, there is a need for clear and consistent communication by all the authorities at an early stage. further, any decision to extend support to an insolvent institution on systemic or national interest grounds would be one properly taken by a government under advice, not a central bank itself. fourth, if support for an institution in difficulty were to turn out to be more than just temporary, the public sector would face difficult issues of how to structure that support. any such support should, however, come at considerable cost to the private owners and managers of the troubled entity. public sector support should not be used to “ bail out ” private shareholders or those who were responsible for running the troubled institution. conclusion australians have been observing the major financial events of the past year mainly from the sidelines. while there have