ratings in the system, to clarify their appropriate use by investors and regulators, and to address concerns about conflicts of interest in the ratings process. closer collaboration between the imf and fsf is one way that we in the global community hope to improve our ability to stay on top of risks in the future. a second set of initiatives has focused on prudential regulation and oversight. i believe strengthened capital and liquidity frameworks will be seen as a central achievement of the work to enhance systemic resilience. more capital will be required against trading and securitisation risks, and more intense oversight will be applied on liquidity risk management by banks. these improvements will be phased in carefully, so as not to exacerbate situations that are still fragile. given the importance of preserving a level playing field, this work has necessarily been coordinated internationally. third, the fsf has initiated different work streams directed at reducing procyclicality in the financial system, i. e. the tendency of the financial system to accumulate excessive risk and leverage in good times and to shed risks excessively in a downturn. efforts are also underway to improve the incentives created by compensation systems in financial firms. fourth, supervisors have agreed to cooperate more closely in overseeing internationally active banks, through such vehicles as supervisory colleges. finally, going forward, it will be crucial to review the perimeter of regulation, in order to reduce gaps and inconsistencies in regulatory regimes and to address potential systemic issues that are present in sectors currently not regulated. new challenges for macroeconomic policies while this structural response is clearly an essential part of the cure, as it helps to renew confidence in the markets, it is also clear that many of the measures we are taking or discussing will only have an impact over the medium term. this is in the very nature of a structural response, which is foremost concentrated on the regulatory framework. today the immediate challenge we face is to avoid a situation where the recessive forces deepen and combine with the impairment of financial markets in creating a vicious spiral. over the last few months, the outlook has quickly shifted from slowdown to recession, from supply to demand shock, and from inflation to deflation risks. this new situation requires not only further and bolder actions, but also to step up the level of cooperation and common understanding between policy makers both at the national level and internationally. let me briefly review the main challenges confronting the conduct of macroeconomic policies looking forward. monetary policies monetary policies in response

provides all of us with valuable experience that we at the fsf and more generally the supervisory community are building on in designing the future financial system. however the crisis has been remarkable in raising the awareness of all the exercise is conducted using a dsge model described in l. forni, a. gerali and m. pisani ( 2008 ), “ the macroeconomics of fiscal consolidations in a monetary union : the case of italy ”, bank of italy, forthcoming. see also l. forni, l. monteforte and l. sessa ( 2008 ) “ the general equilibrium effects of fiscal policy : estimates for the euro area ”, journal of public economics. imf, “ world economic outlook, october 2008. authorities about the need to cooperate and coordinate their actions domestically and internationally. let us hope that the present momentum will stay even when the situation will improve, as i am confident it will.