speaking, in a situation where uncertainty surrounding the economy increases, prevailing thinking is that the central bank should conduct monetary policy more carefully and cautiously. at the same time, not a few criticize that such a gradualist approach to monetary policy might well end up in “ too little, too late ”. some even argue that monetary policy should be decided from the viewpoint of the “ minimax theorem ”, which aims at minimizing damage in the worst scenario. according to this theorem, the central bank should first compare two policy options, for example, to erroneously tighten monetary conditions despite the arrival of the new economy and thus deprive the economy of an opportunity to raise growth potential on the one hand, or to misunderstand a bubble as part of the transition process to the new economy and continue monetary easing on the other hand. and it should conduct monetary policy by judging which one of these two policy options is likely to result in a less worse scenario. i suspect many central banks will perhaps be required to make such a comparison in the conduct of monetary policy. today, i have discussed some problems resulting from changes in the financial system that central banks face and how they should respond. despite the various efforts i have outlined, the probability of a financial crisis occurring can never be reduced completely to zero. with this in mind, a central bank should enhance its crisis management ability. in this context, it is necessary to conduct risk monitoring and analysis while paying close attention to the increasingly globalized financial system, and to strengthen a cooperative framework among central banks to deal with risks once they materialize. of the various efforts made toward this end, the bis committee on global and financial systems that i have the honor of chairing, has been actively working, as its primary mission, to discover potential market vulnerability at an early stage and to propose remedial measures, often in collaboration with the bis sister committees. for example, based on the analyses of the recent international financial crises, we have put forward suggestions for a method of disclosing foreign exchange reserves, a market design for enhancing liquidity, and a way to improve statistics with regard to international fund flows. at the outset, i said : “ a central bank is unique in that it conducts its business while always paying attention to the interfacing of the macro - economy and the financial system. ” i think what is required of a central bank is to conduct appropriate monetary policy while giving due consideration to this unique feature, and at the same time to

flows will be scrutinized by regulators for type of investment and whether direct or passive. also complexity of investment products will draw special attention. as for inward investment flows, regulators will put some type of filters to prevent hot money, or huge inflows followed by quick outflow of funds. banking regulations will probably be amended in the coming few months. i believe, the smaller economy countries will steer their banking system towards lowering the growth rate of loans and advances plus investments versus stable deposits. investment banking business, on the other hand will be subjected to a great deal of more regulations than in the past. in summary, i think that the present global financial crisis will impact globalization of financial services, as many restrictions will be put in place in many countries including the g7 countries, which might open a window of opportunity for countries in our region or the wider area. second : cross - border investment flows cross - border investment flows should be welcomed by recipient countries and encouraged by source countries, as many countries in our area need to set rules to enable the establishment of large projects for the purpose of creating jobs. that will also enhance peace and stability on the national level, which will certainly improve the prospects for the regions in this vast area. any help by the world bank in improving and unifying investment laws in addition to watching their implementation, will go a long way in achieving this important regional objective. sovereign wealth fund source countries should also be interested in investing in mega projects in the region for three reasons, as follows : 1. the global financial crisis proved that investments through industrialized advanced countries ’ investment banks are not totally risk free. 2. there is a need within swf source countries to safe guard flow of food imports at reasonable prices, and the possibility for incorporating companies as direct investment projects in countries in the region is a realistic possibility, when investment laws are enacted and maintained at international standards. 3. swf source countries should be interested in the maintenance of social order, peace and stability in the regions of this area. another reason that makes me think that swfs from our region might change the flow of their direct investments, is that once we see the proposed regulations re sovereign wealth funds in the industrialized advanced economies start being implemented, when economies in the west start doing well, more questions will be asked and more forms will become necessary to fill and more disclosure and transparency will be demanded. this behavior will signal that there is no strong need for foreign capital in the west, and that the