. as the risk properties of such products differ considerably from those of traditional bonds, agencies should think about using a different rating scale for structured products. moreover, conflicts of interest need to be considered as rating agencies are paid both for advising the issuer on the best way to structure their products and for rating the same products. to tackle these weaknesses, the rating industry has already indicated the readiness to develop some guidelines for “ best practices ”. i believe it would be helpful if regulators discussed the necessary changes with rating agencies and other market participants. such discussions could lead to a higher degree of transparency, including the assumptions underlying the ratings as well as methodologies used or minimum requirements for rating quality. iii risk management at the same time, i cannot repeat often enough that external ratings are no substitute for appropriate risk management within financial institutions. the turbulence has made it very clear that improvements in risk management practices are absolutely necessary. this concerns in particular credit and liquidity risk. stress tests are key, and their use should be enhanced to identify potentially excessive exposures. over recent years, liquidity risk has obviously been underestimated by financial institutions. it should receive more attention in the future. currently, work is being done on international liquidity guidelines, but this seems to be a very difficult subject to put into practice. iv regulatory issues so let me draw your attention to regulation that is already in place today. basel ii came into force in europe at the beginning of this year. i expect it to prevent at least some of the problems that contributed to the financial market turbulence. for instance, with the introduction of pillar 1, financing facilities for special purpose vehicles will become subject to a capital charge. this will reduce the regulatory arbitrage that resulted in large off - balance - sheet exposures. financial institutions ’ internal control mechanisms will be strengthened by the supervisory review process in pillar 2. last but not least, pillar 3 lays down disclosure requirements and will thus strengthen market discipline. in the light of the current developments, some refinement of basel ii should not be ruled out. for instance, it may be worth reconsidering if the originally agreed risk weights and the conversion factors for off - balance - sheet exposure need readjusting. furthermore, i would like to stress that regulatory arbitrage needs to be avoided and loopholes should be identified quickly in the future. in recent years, and in particular in the structured finance business, unregulated financial institutions have played an increasing role. the growing

importance of hedge funds and private equity firms and the establishment of off - balance - sheet vehicles, such as conduits, are cases in point. at the end of the day, a significant share of financial market activities was outside the focus of regulators and supervisors. this leads me directly to another issue with regard to supervision and financial stability. in my view, the constant and rapid development of new financial instruments, valuation models or legal structures poses a particular challenge to financial authorities. what we need is a speedy transfer of insights gained in international financial markets into our supervisory work. and this is one of the many reasons why central banks should be involved in supervision. the current turmoil has clearly demonstrated how important the interaction between central banks and supervisors is. thanks to its direct contact with market participants, the bundesbank has access to important details that are essential for the assessment of financial market turbulence and its impact on the german financial system. furthermore, such information is of key importance for central banks ’ responses to disturbances in the financial market, as we have seen with regard to the liquidity provision of the eurosystem in the money market. v statistics last but not least, i ’ d like to mention another factor that might increase financial transparency and thus help to reduce, at least indirectly, the risk of future financial turbulences, and that is closing some statistical gaps. an important aspect that is currently being considered by eurosystem statisticians is how credit risk transfer by banks could be covered statistically. this could include both data on the traditional “ true sale ” and synthetic securitisation operations as well as on transactions in credit derivatives. some additional insight might also come from more data on the so - called financial vehicle corporations issuing asset - backed and other securities in the process of securitisation. collecting data on such entities is currently under discussion in the eurosystem. moreover, it is essential to gather more information on the holders of financial assets. the bundesbank has initiated a security - by - security data collection on the holdings of the various sectors, as is also practised in some other countries of the euro area. the centralised securities database that is being developed in the escb – and that will be presented at this conference – could bring us a step forward in these endeavours at the european level. vi conclusions to sum up, let me emphasise six points. first, the current financial turbulence has revealed weaknesses in the originate - to - distribute model. it needs careful handling