, and the recent discussions of private sector burden sharing can be viewed as, in some sense, an international equivalent to domestic bankruptcy arrangements. in a company bankruptcy, failure to follow the right approach results in a “ fire sale ” of assets : in a national financial crisis, it results in a flight of capital and an excessive fall in the exchange rate. the third working party report to the g22 on international financial crises addresses the problem where, in a crisis, all individual creditors look after their own private interests and, in so doing, create a situation which is worse for them as a whole ( and for the debtor country ). this is the problem known colloquially as “ everyone rushing for the exit at once ”. the report makes a number of helpful suggestions, all of which revolve around the recognition that a tripartite agreement between creditors, debtors and probably the imf would be the best way of resolving a crisis once it has begun. the agreement would involve some sort of standfast followed by a workout which would include rollovers of debt and rescheduling. this is a very promising approach, but as recently as last year in the asian crisis was dismissed on the grounds that it represented an interference with the free flow of capital ( which it does ). i should take this opportunity of saying how useful australia has found the g22 meetings. for a group that has only been in existence for a little over six months and has only met twice at ministerial level, it has achieved a lot. the three working party reports are the most constructive effort to date in laying out some practical steps towards improving the international financial architecture. i have already said how useful i thought the third report was, but there is also a lot of good sense in the first one which deals with transparency and disclosure, and in the second one which deals with an improved financial system supervision. both these subjects - disclosure and supervision - have relevance for the very topical subject of hedge funds. in fact, the first report recommends that “ a working party be formed as soon as possible to examine the modalities of compiling and publishing data on the international exposures of investment banks, hedge funds and other institutional investors ”. we regard this cautiously worded recommendation as a big step forward, in that for the first time to my knowledge, an official international body has proposed bringing hedge funds into the disclosure net. but i wonder if it is still too cautious. the big macro hedge funds have become, to some extent,

mr. macfarlane speaks to banking supervisors on the challenges for the world ’ s economic policymakers talk by the governor of the reserve bank of australia, mr. i. j. macfarlane, on the occasion of the 10th international conference of banking supervisors held in sydney on 21 / 10 / 98. i would like to start by adding my voice to those who have already welcomed you to this conference and to the city of sydney. it goes without saying that there could hardly be a more propitious time for the international leaders in the field of bank supervision to be meeting. when we first started planning this conference a couple of years ago, we did not know whether it would attract a lot of interest or would be greeted with a yawn. we now know it is the former, and we in the reserve bank, and our colleagues at the australian prudential regulation authority, with whom we are jointly hosting the conference, are sure that you will be in for a very interesting couple of days. it is hard to pick up a newspaper these days without seeing the word “ crisis ” prominently displayed in a headline somewhere. first, we had the asian crisis, then it spread into being an emerging markets crisis, and now we hear so much talk of a world financial crisis. it is interesting that, so far, the focus is on the word “ financial ” and not on the more general word “ economic ”. it is also interesting that these troubling financial events are no longer confined to emerging market economies. one consequence of these two trends is that the contrast between economic health and concerns about the financial sector is as marked in the world ’ s most powerful economy - the united states - as elsewhere. there is a big challenge, therefore, to the bank supervisors of the world, and it seems to be equally large whether they are dealing with the least, or the most, sophisticated of the world ’ s banking systems. i see two main challenges for the world ’ s economic policymakers - one for the short term and one for the medium term. in the short run, the challenge is to get through the current crisis - to make sure no more dominoes fall through contagion. the region at risk is clearly latin america, even though many of these countries are now running infinitely better macroeconomic policies than could have been imagined a decade ago. it would be tragic for them to be blown off course by the spread of financial turbulence that they had no significant part in the making of. it