value accounting ; • the fsf has also endorsed principles for sound compensation practices that will better align compensation arrangements in financial firms with prudent risk taking, and make these arrangement subject to supervisory oversight ; • finally, we have endorsed principles for cross - border cooperation on crisis management that commit our members to cooperate in preparing for and dealing with financial crises. a significant amount of this work delivers on the g20 action plan and will be published as part of the london summit in the next few days. to be effective and retain legitimacy, the fsf ’ s international coordination activities need to involve the leading advanced and emerging economies. for this reason, we have recently announced the expansion of our national membership to encompass all of the g20 countries, as well as spain and the european commission. the expansion of the fsf ’ s membership will enhance the fsf ’ s ability to contribute to ongoing reforms of the international financial system. countries that are members of the fsf commit to co - operate in promoting financial stability, maintain the openness of the financial sector, endorse and implement international financial standards and to undergo periodic peer reviews of their financial, supervisory and regulatory arrangements. looking forward, the fsf needs to remain engaged with the most important issues and questions that have been raised by the present crisis. for example, as the turner review recognises, regulation needs to focus on the economic substance of financial activities, rather than the legal form assumed by institutions. we have learned that the activities of large, highly leveraged institutions of all kinds have significant systemic impacts and potentially pose critical systemic risks. for this reason, the fsf has initiated work to assess the proper perimeter of regulation – to evaluate which institutions, markets, instruments and activities need to be supervised directly with an eye to their systemic relevance, regardless of their legal form, and what regulatory tools are appropriate. finally, as authorities we need to improve our ability to recognise, assess and respond effectively to mitigate nascent systemic risks at the global level. this is by no means an easy task – as we have learned from the experience of the present crisis, many critical risks are hidden on and off the balance sheets of large, complex institutions, or in the exposures to complex financial instruments, or in the idiosyncratic characteristics of national markets. no single authority can realistically obtain a complete picture. yet, looking back on what was said by the fsf, the fsa and others in the leadup to the crisis, it is

incorporating cyclical factors in published accounts. i also applaud lord turner ’ s proposals for enhancing macroprudential analysis – that is, assessing the implications of macroeconomic trends for financial stability, the ability of the financial system to absorb or propagate macroeconomic shocks, and the interlinkages among financial firms. indeed, it is precisely in this area that we have the most to learn from the experience of this crisis. we need to think hard and carefully about how to put these lessons into practice in formulating policies that incorporate financial stability concerns into traditional macroeconomic policy levers as well as regulatory rules and approaches. many of these areas for action have an important international dimension. as we implement these new approaches, it is critical to maintain a level playing field internationally as far as possible. we must avoid a situation where national authorities are reluctant to impose tighter regulation for fear that this gives an advantage to banks in other countries. we need internationally consistent rules and standards to support sound international financial activity and mechanisms for supervisors to share information and coordinate supervision of large cross - border institutions. and we must better understand the systemic risks that never respect national borders, as we have repeatedly seen during the past 18 months. this means that we need more effective international cooperation. the fsf contributes to this cooperation by regularly bringing together senior officials responsible for setting financial policy at the national level along with international financial institutions and standard setters. our dialogue facilitates a common diagnosis of problems, a better understanding of how key policy responsibilities and fields of operation interact, and a more coherent and consistent approach to maintaining a stable and efficient financial system. fsf members share a determination to address the systemic problems that have been at the heart of the crisis and have engaged in an active collaborative effort over the past year and a half to develop and implement measures to strengthen the underpinnings of the financial system. a year ago we published our report on enhancing market and institutional resilience, which set out a plan of action for strengthening the system in such areas as prudential regulation, transparency, the role of credit rating agencies, and international cooperation in the supervision of large complex groups. we are also about to issue recommendations and principles in important additional areas : • on procyclicality, the fsf recommends actions that will dampen procyclicality in bank capital, establish more forward - looking loan loss provisions, and mitigate the adverse interaction between the build - up of leverage, maturity mismatching and fair