is driving in terms of further integration. this should provide a powerful incentive for greater speed and ambition in developing the institutional infrastructure that can accommodate the challenges that come with integration. overall, however, the direction of change in the emerging world seems fundamentally reassuring. after a crisis that was in a sense the result of a failure to manage the early stage of financial integration, governments in emerging markets have established a record of credible fiscal and monetary policy management, built more substantial cushions of insurance against potential shocks in external reserves, restructured the currency denomination, maturity and composition of their debts to make them less vulnerable to volatility, and begun to build deeper and stronger domestic financial systems. these changes make it more likely that the progress now underway toward further financial integration - as they move to more open capital markets and more flexible exchange rate systems - will bring substantial benefits in terms of growth and fewer risks in terms of financial stress. the stronger foundation now in place will make the next wave of financial integration more successful. the policy achievements of the last decade are enormously consequential for the people who live in emerging markets. if the progress is sustained, the reduced vulnerability to financial crisis and the enhanced efficiency of resource allocation have the potential to dramatically increase long - run growth and living standards in these countries. and of course the united states, and the rest of the world, has compelling strategic and economic interests in the success of this endeavor. a more complete and successful integration of the emerging economies offers the prospect of a more prosperous and stable global economy. thank you.

_ 0904a. pdf see tucker p m w ( 2010 ), “ shadow banking, financing markets and financial stability ”, january 2010. bis central bankers ’ speeches in a world in which regulatory arbitrage is endemic, it is a fact of life that the re - regulation of banks will set up incentives to build banking - like functions in other forms. the import of this for my remarks today is that securities market regulators ( and insurance regulators ) need either to be relaxed about the supervision of shadow banks being transferred to banking supervisors or, alternatively, vigilant about maintaining regimes that do not permit systemic risk to accumulate beyond the perimeter of the banking system. in the uk ’ s planned new regulatory framework, the financial policy committee will be responsible for recommending to the treasury when prudential supervision of a type of firm should shift from the securities regulator to the prudential regulator ( and vice versa ) ; and it will be able to advise the fca on when it needs to revise its rulebook in the interests of stability. different jurisdictions will come up with different arrangements to address this issue, but i would say that every jurisdiction is going to need its own solution. and, perhaps for the first time, that has highlighted the need for some international co - ordination of policies on shadow banks. the fsb is just starting to explore this virgin territory. 21 asset managers and incentives the vast majority of the asset management world is not engaged in shadow banking and, more important, does not of itself jeopardise the stability of the system directly if it gets into trouble. the taking and absorption of risk by unlevered funds is a fundamentally healthy part of the system. but financial stability authorities cannot be indifferent to this industry. by investing in the debt and equity of banks, it is a vital part of market discipline. we do not want – and cannot have – a system where the first line of defence after the management of banks themselves is the cadre of official sector supervisors. for the system to be healthy, we need boards, auditors, equity investors and debt holders to play a big part, and for investment decisions to be subject to constructive incentives. yet, there is relatively little debate about whether the incentives of asset managers made the system more prone to crisis. although not a subject for today, an important part of this is the drive to develop resolution regimes that entail debt holders taking losses on their exposures to distressed banks and dealers. that will create an