##ers and borrowers cannot simply be assumed away. it is not easy to quantify, but it is noteworthy that the number of sovereign defaults has declined quite sharply during the 1990s. if sovereign risk is mis - priced by private capital markets, this sows the seeds of future crises. the increased provision of official finance would proceed hand - in - hand with an increased incidence of crises. second, to be effective, a lender of last resort must have the ability to extend sufficient resources that the market has no doubt whatsoever about the ability to provide whatever it takes to deal with the immediate crisis. the imf is not in that position. there is no political commitment to provide the imf with unlimited funds. as the finance ministers and central bank governors representing all imf member countries said in their communique of the imfc last september in prague : " the committee notes that fund resources are limited and that extraordinary access should be exceptional … ". in practice, however, exceptional access has often been more the norm in recent years. normal access is typically defined as 300 % of imf quota. during the asian crisis, korea's programme was almost 2000 % of quota and thailand's over 500 %. more recently, turkey's programme was over 1500 % of quota and argentina's 500 %. if creditors and debtors continue to believe that exceptional access is readily available, then international credit will be over - extended and the incidence of crisis will increase. one reaction to these extremely large packages – " bailouts " – and the accompanying moral hazard is simply to say that the official sector should have no part to play in what is essentially a private international capital market. official lending is now small relative to private capital flows. over the last three years, private flows have been around 7. 5 times greater than official flows, according to iif data. against that backdrop, some have argued that the imf should be abolished. this would be to throw out the baby with the bath water. what is needed is a " middle way " between full imf insurance and no insurance at all. this middle way would comprise imf lending but within strong presumptive limits. a key principle underlying this approach is that the international community needs to set out as clearly as possible the criteria that will govern the size and scope of imf lending. since most agree that there are limits on imf lending, there is merit in explaining those limits to both potential borrowing countries and their private creditors.

costs of government securities. increases in long - term interest rates would impact on the real economy, with possible repercussions on banks ’ balance sheets, casting doubt on the strengthening of the financial system. rules and controls on finance the purpose of the package of regulatory proposals recently announced by the basel committee on banking supervision is to strengthen banks ’ stability and contain liquidity risk. banks ’ capital bases will have to consist of high - quality instruments, genuinely capable of absorbing losses ; leverage will be curtailed ; the procyclical aspects of regulation will be attenuated through the build - up of capital buffers and provisioning in periods of strong growth for use when losses materialize. in the early part of this year, the committee will conduct a detailed impact assessment, in order to appraise alternative proposals, calibrate the new rules and set the new, higher capital requirements for banks. it will be important to verify the overall consistency of the framework, imposing stricter prudential requirements on those banks that operated with the particularly risky business models that were at the root of the crisis. the g20 leaders decided that the new rules do not have to take effect immediately, but only at the end of 2012, and in any event under the proviso that they not impair the stability of the markets and the resumption of an adequate flow of funds to the economy. they called on the financial stability board to examine the macroeconomic implications of the reform, and to ensure the requisite gradualness of its implementation, with appropriate transitional and grandfathering clauses governing the instruments already issued. the crisis demonstrated the devastating repercussions of the failures of major financial institutions. governments and central banks intervened to mitigate its impact ; in so doing, at times they supported and protected the very institutions that had triggered the crisis in the first place. moral hazard was compounded by the crisis : financial institutions have felt sheltered from the risk of failure and the fear this inspires, they have been taking new risks and, thanks to the extraordinary market conditions that have been created, are reaping enormous profits. reducing moral hazard is a shared objective. this is to be done by lessening the likelihood of failures and circumscribing the attendant damage ; creating mechanisms for their orderly management ; and centralizing the channels that transmit their effects, such as derivative instruments, which nowadays are traded outside regulated markets and bilaterally. criteria must be devised to determine the systemic importance of an