and risk - based capital is that they work. if and as they work, we may well observe what the critics note. but, that short - run effect has to be evaluated against the long run, and a judgment reached about the terms of the tradeoff. for in the long run, both market discipline and risk - based capital charges affect ex ante risk - appetites because lenders can calculate the likely impact of their actions. the resultant change in behavior should reduce the amplitude of cycles, and any resultant pro - cyclicality has to be evaluated against that backdrop. or, more generally, short runs have to be evaluated against the backdrop of long runs, regardless of mr keynes ’ s unfortunate observations about the latter.

overvalued exchange rate. with ltcm, there was similar excessive leverage and reliance on short - term financing arrangements. going forward, international organizations and national authorities will have to invest more resources in monitoring markets for signs of stress. while there is not a single indicator of banking or balance - of - payment crises, the tracking of financial market prices in many markets and financial flows across borders should help to identify trouble spots. where appropriate, national authorities should consider broadening the information they collect. complementary to these efforts, national authorities can take steps to facilitate transparency within markets. the key to avoiding excessive leverage is the market discipline that should be provided by market participants ’ creditors and counterparties. but market discipline works well only if counterparties share sufficient information to allow reliable assessments of their risk profiles. supervisors need to ensure that, before establishing credit relationships, regulated entities have a clear picture of a counterparty ’ s risk profile and have ensured that information relevant to that relationship will be available on a sufficiently timely and ongoing basis. public disclosure also has an important role to play, and authorities should make sure that appropriate requirements are in place. to be sure, public disclosure is unlikely to be sufficiently timely or detailed to meet the needs of creditors. still, it is essential to protect retail depositors and investors, and it provides a standardized framework from which customized bilateral disclosures can be drawn and elaborated. lastly, industrial countries have the responsibility to assist in the training of supervisors in emerging market economies, an area in which, i am pleased to say, we in the federal reserve system have been active for a while. we cannot afford not to take this responsibility, and in this regard, virtue is more than its own reward. we benefit in such technical assistance by strengthening our contacts with supervisors abroad, which is important when examining internationally active institutions based here at home, and by reducing the potential for adverse shocks from abroad. issues for further consideration as i noted, one of the contributing factors to asian financial distress was the ill - considered buildup of short - term foreign currency borrowing by banks in these nations from banks in industrial countries. some have attributed such behavior to the effects of an inappropriately low capital charge in the basel accord for short - term interbank credit extensions. they argue that the experience requires an increase in capital charges in order to effectively control the quantity of interbank loans. i do believe that we, in fact, should question the treatment of interbank credit by the accord. credit risk, in my