border banks. however, this crisis has highlighted the moral hazard posed by institutions that are deemed too big to fail, either due to size or interconnectedness. there are no easy answers to deal with the problems represented by large and complex institutions. however, it is clear that we should differentiate among prudential measures and resolution tools. the first should be aimed at reducing the probability and impact of a large bank failure, and the second at making the financial system better able to deal with a large bank failure. a. reducing the probability of a large bank failure. to reduce the probability of a large bank failure some policy makers argue in favor of imposing additional prudential requirements and oversight measures. among them, there is a group supporting the idea of applying a capital surcharge to banks deemed too large or too interconnected. i have strong considerations regarding this measure. a capital surcharge will convey the wrong message to the financial market. the message will be that the authorities consider that particular bank as too big to fail. this certainly would not help to decrease the moral hazard posed by some institutions. such a measure would also bring to bear particularly adverse effects on countries that have truly opened up their financial systems to foreign investment and maintain a large foreign bank presence, like mexico and poland. the imposition of proportionately higher capital requirements for large cross border banks would inevitably translate into higher intermediation costs. foreign banks enjoy a large and dominant presence in many emerging market economies. therefore, imposing higher capital requirements will also have potential negative impact on the achievement of a level playing field across countries. furthermore, this measure would also represent a draw - back in terms of financial integration. others are in favor of strong measures such as breaking up banks into utilities and casinos. however, to draw a line between utility and casino banking may prove too difficult to do. there might be other policies which could make more sense. the european commission seems to be leaning towards the idea that whatever the benefits of size in banking, the public interest requires smaller banks. measures should also be tailored to the nature and structure of the institutions. different responses may be more appropriate for large and very complex cross - border structures with centrally managed capital and liquidity than for institutions organized as simpler networks of national banking subsidiaries, each with their own separate capital and liquidity. we consider that complex cross - border banks should be regulated at local levels. there are no global lenders of last resort, neither global bank resolution process. we do not

shortage of liquidity would emerge, which could lead to a new period of economic contraction. enhanced international monetary cooperation can provide a way out of this dilemma. certainly, the sdr allocations of 283 billion dollars, which multiplied the existing stock tenfold, have helped to complement many countries ’ international reserves and boost confidence. but other avenues need to be explored to reduce the demand for reserves. i believe that bilateral swap agreements such as those negotiated between the u. s. federal reserve and a number of other central banks could play a useful role in this regard. moreover, the imf should build on the success of the flexible credit line ( fcl ) and consider more instruments offering credible alternatives to self - insurance through reserve accumulation. indeed, the fund needs to design additional financial instruments to promote long ‐ term global stability and the proper functioning of the international monetary system.