the importance of financial markets in the functioning of the world economy, and the complexity of the channels of interaction between such markets and the real economy. this simple idea has fostered quite a number of initiatives, at the national and international level, to reinforce the resilience and efficiency of financial markets. topics that used to be too technical and tedious, such as accounting and corporate governance, have become exciting and the centrepiece of many reform agendas. let me mention just three issues in this regard : first : financial market integration i believe that one factor which can and should prove fundamental to strengthening the world economy is the integration of international financial markets. the integration of financial markets will promote both competition and transparency and will enhance liquidity. investors will benefit not only from a reduction in transaction costs, but also from an increase in investment opportunities, allowing them to manage risk better. companies, for their part, will find it easier to raise funds to develop their activities. to be sure, in recent years, we have seen impressive advances in the degree of integration of international capital markets. this has fostered a better allocation of saving and improvements in efficiency from which we have all benefited. at the same time, this process has also entailed a more rapid transmission of shocks, whether or not these are generated in financial markets. in the european union, although the process has been given notable momentum thanks to the introduction of the euro and to a series of measures such as the financial services action plan ( fsap ), we are still a long way from achieving fully integrated markets, so that an additional impulse is required. second : accounting harmonisation among all the developments needed to bring about market integration, let me mention one that seems to me particularly important : accounting harmonization or convergence at the international level. financial information is of crucial importance for the proper functioning of the financial system, since it is the basis on which agents make their decisions. retaining their confidence in the reliability, relevance and timeliness of such information is vital. currently, the cross - country comparison of financial information is difficult, since the set of rules under which such information is compiled varies from country to country. moreover, the interpretation of such rules is not always uniform. this is cost - inefficient for those companies having to comply with different accounting regulations because they operate in more than one geographical region. likewise, the lack of comparability may hamper cross - border activity and decision - making by investors. there have

been some encouraging developments in this area. first, is the memorandum of understanding between the iasb and the financial accounting standards board ( fasb ) formalising a commitment to convergence towards common principle based accounting standards. admittedly, this will not be an easy task, but it seems vital to move in this direction. second, the european union has taken a significant step forward. it has resolutely considered need to promote the comparability of different countriesa€™ financial information as an unavoidable prerequisite for achieving the single financial market. accordingly, a regulation was approved last year adopting the international accounting standards ( ias ). specifically, in 2005 companies listed on regulated financial markets will have to prepare their consolidated financial statements in accordance with these standards. the thrust of this regulation is to achieve clear pan - european rules for comparable, transparent financial reporting throughout the european union. rules which will make companies provide relevant and reliable information for investors and other stakeholders so that they can make meaningful cross - border and cross - sector comparisons. but accounting regulation also poses significant difficulties. in banking, one of the most important challenges for accounting standard setters is to achieve consistency with sound risk - management practices. incentives built in to the accounting rules should be compatible with and encourage good risk management. in this connection, the areas of financial instrument accounting and transparency rules require special attention. this idea of market friendly incentive - oriented rules leads me to my last remark on the role of prudential regulation. third : efficient risk management one key question that we prudential regulators should ask ourselves is whether regulations provide the right incentives to assess and to manage risks properly. this question is directed at the very essence of financial regulation, whose basic aim is to ensure the stability of the financial system without being too intrusive or undermining its efficiency. providing market friendly incentives for efficient risk management is probably the best contribution we can make to foster financial resilience. as you know this is one of the key objectives of the new basel capital accord, the so - called basel ii. let me just mention that in designing the new standards we have been and will continue to be sensitive to the possible implications for financial markets in terms of liquidity and potential development. this is especially so in areas such us securitisation and collateralised transactions. the implementation of basel ii will contribute to enhanced risk management by banking institutions. this initiative, along with others related to a general improvement of standards and practices in several