, to ensure that obstfeld - rogoff findings hold even in a world of integrated financial markets, we must ensure that capital markets are indeed effective in delivering risksharing. thus, the less we believe in formal coordination, the more we should strive to make international capital markets work. and this is a collective duty : central bankers should not leave this agenda to regulators and lawmakers, let alone to market participants, because it is crucial for the effectiveness of our monetary policies. in the same vein, those of us who also are bank supervisors should endeavour to recognise and overcome possible conflicts of interest. there is a temptation to ring - fence our domestic financial systems under our domestic financial stability mandates. but the more we ringfence, the more we limit financial risk - sharing channels, and the less efficient our monetary policies ultimately become. there are many other fields in which central banks can fruitfully cooperate. we can work together to improve the understanding of spillovers and shocks. we can prepare the instruments which will allow us to act together in times of crisis, such as foreign currency swaps. and we should all strive to design transparent policy frameworks and clearly communicate our reaction functions. thus, scepticism about formal coordination should not extend to pessimism about cooperation. going forward, a practical challenge i see is that the crisis has sizeably broadened the set of standard and non - standard monetary policy instruments, making the universe of central banking more complex than before. there will thus be a premium on clear communication, especially given the expected divergent monetary policy cycles across the atlantic. in my view stanley fischer ’ s recent speech on “ the federal reserve and the global economy ”, which discusses the global implications associated with the normalisation of fed policies, provides a very good example of how this can be done. bis central bankers ’ speeches the euro area aspects of the policy mix if we move from cooperation at the global level to cooperation ( or the policy mix ) within the euro area, the arguments about formal coordination change. this is not so much a question of monetary policy coordination, as a question of the coordination of other policies to be consistent with monetary policy : the maastricht treaty enshrines the principle of monetary dominance. indeed, price stability in the region as a whole is the single most important coordination device for other economic policies, reaching out into various policy domains across the member states of the euro area. despite this potentially wide remit for coordination, debates on

over the long run. let me elaborate on our reform programme, which is nearing its final stage of completion. my focus will be on strengthening the global capital framework and introducing a global standard for liquidity. ii. capital reform quality of capital base i will start with capital since raising the level, quality, consistency and transparency of the capital base is one of the committee ’ s primary objectives. it is only through higher levels of loss absorbing capital that the banking sector will be in a stronger position to shield the economy from future shocks. the thrust of our work is to improve the level and proportion of the core elements of tier 1 capital, namely common equity and retained earnings. under the existing standard, banks could hold as little as 2 % of risk - weighted assets as common equity. it is even less if you consider the need for additional regulatory adjustments. this situation is unacceptable and must change. at its meeting on july 26th, the basel committee ’ s governing body – the group of central bank governors and heads of supervision – reached broad agreement on a fundamental strengthening of the definition of capital, with a focus on the core elements of capital instead of debt - like substitutes that are of questionable quality. moreover, virtually all deductions from capital will now occur at the level of common equity, instead of tier 1 capital, as has been the case under the current standard. this will ensure that banks cannot show strong capital ratios and, at the same time, recognise assets that diminish the quality of capital. let me be clear : the change to the definition of capital represents – by itself – a substantial strengthening of the global capital regime. this is the case before we even begin to discuss an increase in the level of minimum capital requirements or the introduction of buffers. capturing all the risks in addition to raising the quality of the capital base, we need to ensure that all risks are captured. during the crisis, we learned that many risks were not covered in the risk - based regime. in particular, these include the complex, illiquid credit products which found their way into banks ’ trading books without a commensurate increase in capital to support the risks. the committee has since strengthened substantially the rules that govern capital requirements for trading book exposures as well as for complex securitisations and exposures to off - balance sheet vehicles. the revised trading book framework, on average, requires banks to hold around three to four times the old capital requirements. controlling leverage an additional and – as recent