##occupation for much of the early 1980s. to provide increased possibilities for the official the secretariat of the g - 10 deputies has recently sent out a questionnaire to a wide range of national and international bodies to ascertain what each has done to support the strategy laid out in the original g - 10 report. a report on progress to date and potential further steps will presumably be put forward to the g - 10 ministers and governors. see basle committee on banking supervision ( 1998a ). - 13 - and private sectors to monitor risk in this area, the committee gave the bis a mandate to coordinate the collection and dissemination of relevant international banking data from national ( creditor ) sources. indeed, in recent years the international banking statistics have expanded in both content and geographic scope and further improvements are under way. 36 the bis statistics on international bank lending have received particular attention recently in the light of the asian crisis. this crisis is similar to the debt crisis of the early 1980s in that banks have been the principal international creditors. 37 moreover, the bis is now also maintaining an extensive database on international securities markets and has dramatically expanded its coverage of derivatives markets. in addition to the triennial survey conducted by central banks, about 75 major financial institutions began, in june 1998, semi - annual reporting on their consolidated derivatives activity. analysis of recent data and associated regulatory developments in all these areas ( banking, securities and derivatives markets ) is presented in various bis publications. 38 while seeking to be neither alarmist nor prescriptive, this analysis does also attempt to highlight points of strain in the international financial system. examples going back to 1996 included comments on the heavy exposure of thai and korean banks to short - term foreign currency financing, and the sharp reduction in both credit and market risk premia associated with relatively risky investments worldwide. the fact that these concerns were generally ignored, as were the similarly muted warnings by other international financial institutions, seems worthy of further reflection. over the last decade, the committee has focused on the implications of financial innovations - and in particular of the rapid growth of derivatives markets designed to facilitate the transfer of market risk - for the functioning and stability of markets. while the general conclusion reached has been that derivatives enhance market efficiency, 39 financial innovation has also brought with it a diminution of transparency in markets and made it more difficult for market participants to assess the creditworthiness of individual counterparties. to help deal with these problems, the committee ( in association with the basle supervisors ) has

greenspan. it is particularly worth noting at the present moment that imprudent behaviour and excessive risk - taking by financial institutions often follow periods of declining profits due either to deregulation, and the associated loss of monopoly rents, or bad investment decisions in the past. examples of such phenomena can be found in the domestic behaviour of us banks in the 1980s14 and the expansion of asian loans by certain japanese and european banks more recently. 15 given the strong current trend towards financial deregulation in emerging markets, and the likely effects of similar developments in industrial countries ( the “ big bang ” in japan, the effective demise of glass - steagall in the united states and the effects on european banks of the introduction of the euro16 ), regulatory oversight will continue to have an important role to play for the foreseeable future. indeed, it is plausible to argue that the combination of these changing circumstances, allied with the spread of internet and other technologies17 ( as well as important demographic changes18 ), could be ushering in an unprecedented period of transformation in modern financial markets. if so, policy - makers will need all the instruments available to them if this process of change is not to prove disruptive. the role of policy overseers will, however, have to change to reflect this required complementarity between market discipline and regulatory oversight. just as monetary policy in a deregulated financial system must be conducted “ with the grain of the market ”, regulatory oversight must be increasingly directed to improving market processes. in response, regulators have already begun to strengthen the focus they put on the adequacy of internal control procedures. this applies both to financial firms and to firms providing infrastructure services in the international financial system. 19 there must too be a greater willingness to use market - developed ( firm - specific ) models for evaluating risk exposures of various sorts ( market risk, credit risk and liquidity risk ) ; this process too is also well begun. regulators will also wish increasingly to set or suggest standards for external disclosure. this will foster the use of market discipline in general and will facilitate the participation and contribution of the losses associated with the debt crisis of the early 1980s were followed ( if not necessarily caused ) by vigorous expansion into lbos, property loans and proprietary trading. at a cepr conference in london on 4th - 5th february 1998, david folkerts - landau of deutsche morgan grenfell stated that many european banks had responded to declining rates of return in european banking in the