with respect to a particular firm only with the approval of multiple agencies, and only upon a determination that the firm's failure and resolution under the bankruptcy code or otherwise applicable law would have serious adverse effects on financial stability and the u. s. economy. these standards, which are similar to those governing the use of the systemic risk exception to least - cost resolution in the federal deposit insurance act, appear appropriate and should help ensure that these new powers are invoked only when circumstances dictate their use. the discussion draft provides that the ultimate costs of any assistance needed to facilitate the orderly resolution of a large, highly interconnected financial firm be recouped through the sale or dissolution of the troubled firm, supplemented by assessments on financial firms over an extended period of time if necessary. we believe this approach provides a path to resolution for financial firms in a way that both mitigates risk to the financial system and protects taxpayers. the availability of a workable resolution regime with appropriate funding would eliminate the need for the federal reserve to use its emergency lending authority under section 13 ( 3 ) of the federal reserve act to prevent the disorderly failure of specific failing institutions. it is important, however, that the federal reserve, as the nation's central bank, retain our long - standing authority to address broader liquidity needs within the financial system under section 13 ( 3 ) when necessary to maintain financial stability. during the recent crisis, our ability to establish broad - based liquidity facilities proved critical in containing the severe pressures that threatened the financial system as a whole and in reopening key financial markets. we used this authority only when the need for action was evident to both the federal reserve and the treasury, a practice that could be formalized by the congress. payment, clearing, and settlement arrangements as i mentioned at the outset, in revising the financial regulatory system, we must look beyond the causes of the current crisis and seek to address areas of potential systemic risk in the future. such areas include critical payment, clearing, and settlement arrangements, which are the foundation of the nation's financial infrastructure. these arrangements include centralized market utilities for clearing and settling payments, securities, and derivatives transactions, as well as the decentralized activities through which financial institutions clear and settle such transactions bilaterally. while these arrangements can create significant efficiencies and promote transparency in the financial markets, they also may concentrate substantial credit, liquidity, and operational risks. in addition, many of these arrangements have direct and indirect

is important to recognize that, while these quantitative techniques are valuable tools, they are no substitute for a thorough understanding of the overall risk dynamic of financial institutions, the related systemic implications, as well as the behaviour of institutions and markets. the emphasis here is that a good macro - surveillance framework must balance technical excellence and technical complexity with sound rationale and good qualitative judgment in order to make real contribution to policy decision. the robust framework of risk - based supervision such as basel ii places a strong technical demand on supervisors not only on pillar i but also for the supervisory review work in pillar ii, which requires dynamically assessing on - going risk and changing risk profile of financial institutions. therefore, macrosurveillance, stress - testing, as well as model validation, will fast become the norm for good risk management. macro - surveillance and its parallel policy framework – especially macro - prudential policy – are now exciting fields for central banks and supervisory agencies. but in my view, the needed pioneered framework is yet to be developed. the quantitative models and tools so far are at its early stage of development compared to those more established in monetary policy, such as the inflation targeting framework. the frontier work currently undertaken by central banks of advanced economies are, for example, developing macro - stress testing model which incorporates interlinkages between financial and real sectors. such work is quite demanding due to the complexity of the evolving linkages and behaviour linked to rapid developments in economic and financial sector, and all the more so with globalisation. in response, community of experts are emerging, and many such experts are now using virtual network such as stress - testing internet platform to share knowledge and experience. for emerging economies such as most seacen members, it is even more challenging in light of data limitations and continued structural changes that are taking place in our markets, particularly the proliferation of new financial products that consumers are less familiar with, and are less able to manage risk because of market limitations in terms of the availability of hedging instruments. this type of situation, if not properly monitored and supervised, can lead to a build - up of financial vulnerability and risks, for example in consumer finance, real estate, and the housing market. therefore, supervisors need to work closely with their counterparts in the monetary policy wing to monitor and assess possible risks. the timeliness of this seminar is all the more important in light of the on - going developments in the global financial markets. global imbalance between economies continues to be an important