##ors which can be especially detrimental to growth in countries who need capital most. 1. 2. several factors are at play when financial asset prices experience more amplified and volatile moves. the first set of factors relate to the behaviour of market participants : some market participants have become more inclined to engage in " short - termism ", that is, they might be too much concerned with their short - term results, exhibiting market “ myopia ”. this trend might result, in particular, from growing pressure of investors to yield immediate financial results that are not necessarily sustainable, the so - called “ tyranny of return on equity ”. moreover, the mark - to - market completed by mark to model of a wide range of assets and liabilities has also contributed to this widespread focus on immediate financial performances. this focus on short - term performance can translate into additional volatility in the price discovery process : indeed, the shorter the investment horizon of market participants, the larger the impact on prices of any new information. mimetic behaviour is by no means a new phenomenon on financial markets. however, technological developments on markets may have gradually reinforced this type of behaviour. the spread of benchmarking, which allows fund managers and clients to measure performance against that of other funds, together with the growing competition within the sector, appears to have favoured such “ herd behaviour ”. some operators have come to the conclusion that it is better to be wrong along with everybody else, rather than take the risk of being right alone. a striking example of rational mimetic behaviour is the influence that hedge funds enjoyed, a few years ago, as " opinion leaders " and trend makers. the second set of factors relates to new market techniques or financial engineering devices. here are a few examples of some of these mechanisms : • the inclusion of contingent or trigger clauses in loan and bond contracts. these clauses provide creditors with a form of insurance since the level of interest rate paid by debtors increases when specific trigger events occurs ( typically the downgrading of the debtor by rating agencies ). these clauses were designed to help borrowers access financing at lower rates. however, these clauses create a sort of vicious circle. indeed, rating agencies are expected to help borrowers to make informed decisions for future financing ; still, through these trigger clauses, rating decisions have an impact on the outstanding debt of borrowers, thus aggravating the situation of the debtor. • the generalisation of credit risk hedging through short

the elements that could potentially counter the boom - bust tendencies. let me give two examples of what is being done : • as regard prudential supervision, i would only mention the fantastic work which has been achieved by the basel committee under the leadership of bill mcdonough, the president of the federal reserve bank of new york, in the field of banking supervision. i trust that the new accord will permit a better and more appropriate handling of this extremely important domain as regards financial stability. i am also happy that the concept of “ dynamic provisioning ”, which is anticyclical by nature, has been recognised by the basel committee as a useful concept. • as regards accounting standards, it seems to me that we should also inject in the present meditations in the us, in europe and at a global level the concern for financial stability. let us beware of changes that would increase the procyclicality of accounting rules. let us favour changes that would simultaneously help fair accounting and diminish procyclicality. in that regard, it seems important to me to design accounting practices which would try to take into account of the time horizon of institutions and market participants. otherwise, we would take the risk of driving all financial institutions and market participants to shorten their time horizon down to a day - to - day basis. this could be a recipe to favour inappropriate market functioning and foster herd instinct in time of excessive volatility. 2. the need for an enhanced framework for crisis prevention and management i do not need to remind you of the long list of financial crises emerging market economies have gone through in the last two decades. against this background, the international community must, on the one hand, enhance crisis prevention and, on the other hand, design and implement better procedures for crisis resolution. 2. 1. authorities must reflect, in conjunction with the financial industry, on building up a suitable system of surveillance and crisis prevention. the objective of strengthening crisis prevention is shared by the private sector and by official community given the magnitude of potential losses ; indeed, in some cases, restructuring costs for banking crises have reached more than 40 % of gdp. building on international standards and codes is instrumental in establishing an appropriate institutional, supervisory and regulatory framework in the financial sectors of all market economies. the value of international standards is now widely recognised, insofar as they contribute to spreading international best practices and codes of good conduct, very closely linked to the globalisation process and the expansion of