. but one should not forget what depends less on us but can have a great impact on the securitisation market. i am talking about rating agencies. it is now clear that rating agencies ’ models failed in the recent past as a result of wrongly basing their ratings on the correlations observed during good times. in my opinion, the recent methodological changes, imposing stricter rating caps ( above the rating of the sovereign ), in particular for emu countries, amount to treating crisis times as structural changes making the new methodologies based again on extreme assumptions. thus, the error is the same, this time in the opposite direction. policy - makers timely acknowledged the fragilities in the design of the emu, identifying the most crucial reforms needed. these will increase the robustness of the euro area economies against adverse shocks. rating agencies do not fully recognize the ongoing process. instead, they decide to change their procedures exactly at the moment in which the institutional framework of the emu is responding to the very same conditions that motivated such move. in this regard, it is important to emphasize that emu countries are about to be equipped with a banking union, which will contribute towards breaking the link between sovereigns and the banking / financial system. further relevant institutional changes include the creation of the european stability mechanism, the fiscal compact, the new role of the ecb in eliminating runs on sovereign debt ( through the outright monetary transactions programme ) and a comprehensive set of eu regulations aimed at avoiding fiscal and macroeconomic imbalances. therefore, rating agencies are moving countercyclically with the eu institutional advances and risk becoming irrelevant. on the methodological side, it is quite obvious that imposing caps in ratings based on the sovereign is equivalent to constraining the results of whatever quantitative models rating agencies use. this is arbitrary and reduces the information conveyed by the ratings while leading to severe pricing distortions in assets across countries. investors in capped securities will require a premium over similar but higher - rated securities while other investors are limited by regulation in their incentives to buy poorly rated securities. additionally, it should be mentioned that abs originated in countries under stress have performed considerably well even during the crisis. indeed, abs default rates have remained low in these countries and at levels comparable to non ‐ stressed jurisdictions ( including the us ). thus, unless clients and regulators have ( also ) access to ratings without the cap, there should be minimal regulatory reliance on the ratings. in any case, additional transparency on loans,

level of an individual country? if only global risks are addressed, vulnerabilities will persist at the local level ; however efforts to address local problems could disadvantage domestic banks relative to those headquartered abroad. third, we need to improve our ability to resolve systemically important institutions without generating spillovers that spread systemic risk across firms or across borders. clearly, each country should have the legal authority to wind down a systemically important institution in an orderly way, taking account of the international dimensions. beyond this, there is not yet a consensus on exactly what to do, but a range of promising proposals have been suggested to facilitate orderly resolutions. one is for supervisors to press firms to strengthen their ability to quickly provide the information on exposures, funding, and counterparties that would be needed for crisis management. another would have supervisors recommend changes to simplify the organizational structures of systemically important firms to make it easier to deal with their failure. a related proposal would require firms to maintain a so - called living will, a written contingency plan that provides for an orderly wind - down should severe financial distress lead to failure. fourth, we need to address home - host issues that arise in the supervision of cross - border firms. for example, some global banks can expose a host country to a withdrawal of risktaking caused by problems outside its own borders. this exposure understandably makes host countries uncomfortable with the traditional division of responsibility that restricts a hostcountry to supervising only the activity of a global bank within its own country. one possible response here would be more information sharing from home to host, to better enable host countries to protect themselves. another response would be restrictions by host countries on cross - border operations of global banks, perhaps going so far as requiring global banks to operate through separately capitalized subsidiaries. however, this requirement, in addition to imposing costs on the banks, might also impede the ability of the global financial system to channel capital to where it is most likely to enhance productivity and growth. conclusion i've touched on only a few of the international aspects of the crisis. we face a difficult set of decisions regarding how best to reform our national regulatory and supervisory frameworks in response to the lessons we have learned. but perhaps chief among the lessons learned from the past two years is that in an integrated global financial system we cannot make those decisions in isolation ; we must collaborate internationally if we are to build a more resilient financial system for the future.