of liquidity in some markets that would dry up very quickly should they withdraw. they often leverage themselves with very high multiples either directly through borrowing or indirectly by intensive use of derivatives. • the importance of hedge funds and more generally of the already mentioned ofis illustrates that there may be circumstances in which injecting liquidity into the banking system – a traditional tool of crisis management used by central banks – may not be sufficient to prevent major instability. three main avenues for mitigating the risks of contagion from hedge fund defaults either through potential losses to their bank creditors or through adverse market dynamics have been proposed 14. first, appropriate intervention by supervisors vis - a - vis prime brokers to make sure that they ask for and get broad information from hedge funds and that they put in angeloni, kashyap and mojon, 2003 noyer, 2006a noyer, 2007 place comprehensive risk management of all hedge funds - related exposures is essential. second, there may be scope for policy - makers to encourage appropriate organisation of infrastructure in order to improve the information available on the markets in which hedge funds operate. third, a specific information system to be triggered in the event of a crisis could be established ex ante in order to ensure that relevant information on exposures and positions could be quickly gathered if necessary. - at the macroeconomic level • increased financial asset holding resulting from financial innovation is likely to result in higher sensitivity of households to asset price booms and busts 15. on the liabilities side of non - financial agents ’ balance sheets, by facilitating the management of risk and easing liquidity constraints, financial innovation stimulates both the supply of and demand for credit, which may lead to higher leveraging and financial fragility. note that both effects run counter to the result i mentioned at the start, i. e. that financial innovation tends to reduce growth volatility. although this result may still hold true in normal circumstances, it may thus be reversed in specific ones, especially in stress situations. • finally, as links between markets are tightened by financial innovation, a shock occurring on one specific market may be more easily transmitted and possibly amplified on other markets. this may particularly be the case if the shock is large and if market participants adopt herd behaviour in the face of incoming information that is disseminated very fast. i will not try to conclude these opening remarks, since it is precisely the purpose of the conference to go into deeper analysis of all the issues

as much as possible. on the first part, we were clear in riga ; on the second part, let me stress that we cannot fully compensate for the uncertainty created by other policy - makers ; nor can we fully offset their effects. we have shown in the past few years that monetary policy is flexible, and we have been willing to use every instrument within our mandate to respond to too low inflation. we have gone well beyond what people thought possible and we will do whatever is necessary to deliver on our price stability mandate - no more and no less. thank you for your attention