arising from effective exposures to the same hedge fund through funds of funds or from investments in different funds with similar trading strategies. current restrictions on hedge fund investors, which limit direct investors to institutions or wealthy individuals, reflect the recognition of the difficulties that a retail investor would face in adequately assessing these types of risk. but as instruments and trading strategies become more complex and intertwined, even the most sophisticated investors will be challenged to make reliable judgments about their risk exposures. likewise, complex and difficult - to - value financial instruments could be exploited as vehicles for profiting from insider trading or market manipulation, although, as history shows, simpler instruments can be used in this way as well. policymakers must be confident of their ability to detect such market abuses when they occur. a principles - based, risk - focused approach how best to respond to these daunting challenges? as i noted, there are powerful arguments against ad hoc instrument - specific or institution - specific regulation. the better alternative is a consistent, principles - based, and risk - focused approach that takes account of the benefits as well as the risks that accompany financial innovation. some commentators have sought to draw a sharp distinction between the approach to financial regulation in the united states and that in the united kingdom. these observers have characterized the british approach as being principles - based and as using a " light touch " – the implication being that these two features somehow go together. in a speech in february of this year, sir callum mccarthy, the head of the united kingdom's financial services authority ( fsa ), took issue with this interpretation. 1 sir callum confirmed that the fsa's approach is built on a framework of principles, although he noted that the fsa also has an 8, 500 - page rulebook to accompany the eleven principles it has laid out. but the fsa head rejected the view that their approach is " light touch. " rather, he said, it is risk - based, which means that regulatory resources and attention are devoted to firms, markets, or instruments in proportion to the perceived risks to the fsa's regulatory objectives. in fact, as in the united kingdom, the principles - based, risk - focused approach to regulation has had considerable influence on this side of the atlantic as well. for example, as you may know, the president's working group on financial markets ( pwg ) recently issued a statement of principles – ten in this case – relating to the regulation of private pools of capital, including

improved in several financial markets. to the extent that these measures improve market functioning, they will have favorable effects on the availability of credit to the broader economy. more - liquid markets also increase the efficacy of monetary policy. in response to the weakening of economic conditions, the federal reserve has eased the stance of monetary policy substantially. the federal open market committee last month lowered the target for the federal funds rate to 2 - 1 / 4 percent – 3 percentage points below its level last summer. the committee anticipates that these actions, together with the steps we have taken to foster market liquidity, will help to promote growth over time and to mitigate the risks to economic activity. the remainder of my remarks this morning will cover the implications of these financial market strains for latin america, focusing on the linkages between the u. s. and latin economies and how they have evolved over time. although there have been major structural improvements in latin american economies, the region is also benefiting from favorable global conditions that are helping to offset potential adverse spillovers from the financial strains. nevertheless, those strains highlight some challenges going forward in latin america, particularly in the area of the regulation of financial institutions. this is no time for policymakers anywhere to feel complacent. developments in latin america the recent financial turbulence has been evident in latin america, but not as strongly as in the united states and europe. spreads on latin american dollar - denominated sovereign bonds over u. s. treasury securities are up noticeably since early last year, but they remain low from a historical perspective. in the relatively new latin markets for long - term localcurrency bonds, yields have edged up in a few countries but have remained essentially flat in others. equity prices in latin america are down relatively little compared with their very large increases in 2006 and early 2007. the pace of economic growth has edged down in many ( but not all ) latin countries from high rates in 2006 and early 2007. the latest international monetary fund ( imf ) forecast, however, continues to project solid rates of growth this year and next in most latin american countries. with a few notable exceptions, inflation has remained relatively well under control ; in most countries, rising commodity prices have led to only modest increases in headline inflation rates. in light of the recent indications of a weakening u. s. economy, is there any historical precedent for latin america to avoid spillovers? in the past, u. s. slowdowns have typically been associated with