First, early-warning models and indicators use information in current data in order to signal the presence of emerging imbalances and risks without adding exogenous shocks that are not priced in by the market. Second, macro-stress-testing models are used to assess the resilience of the financial system against extreme but plausible scenarios of widespread exogenous shocks, irrespective of whether current market data give a particular weight to them. Third, contagion and spillover models assess the transmission of instability among financial intermediaries and among financial markets to the extent that the sources are not common. Financial stability indicators, the fourth approach, display the current state of systemic instability in order to, for example, identify the presence of crises. The specific tools underpinning these approaches are broadly available, although further research efforts are also necessary. The financial crisis has demonstrated the critical role played by some large and complex financial institutions in undermining financial stability. Particular attention is currently being paid by policy-makers to the question as to how systemically important financial institutions (SIFIs) should be regulated and how failures, if they occur, should be resolved. This special feature provides an overview of the ongoing initiatives at the European and international level to deal with these institutions in the broader context of measures aimed at curbing moral hazard and institutions’ contributions to systemic risk. The recent global financial crisis has illustrated the role of financial linkages as a channel for the propagation of shocks. It also brought to the fore the concept that institutions may be "too interconnected to fail", in addition to the traditional concept of being "too big to fail". This special feature introduces recent research on networks in disciplines other than economics, reviews its application to financial networks and discusses how network analysis can be used to gain a better understanding of the financial system and enhance its stability. As the impact of the recent financial crisis began to spread beyond mature economy financial systems, attention was increasingly drawn to the potential systemic risks associated with the prevalence of foreign currency lending in some EU Member States. Although the direct exchange rate risk for banks in most of these countries is controlled by regulatory limits on open foreign exchange positions, banks are still exposed to the indirect exchange rate risk that can arise from currency mismatches on their clients’ balance sheets. This special feature summarises the measures that have been taken by several EU countries to address the financial stability risks related to rapidly expanding foreign currency lending to the non-financial private sector. The experience gained so far indicates that the effectiveness of these measures has been rather limited. Although a variety of factors appear to explain this, what has been particularly important is the persistence of wide differentials in the interest rates paid on loans in domestic currency over those paid in foreign currency, as well as the intensity of bank competition. Moreover, countries’ experiences have revealed that when the presence of foreign-owned banks in local markets is significant, as is the case in non-euro area EU countries in central and eastern Europe, the impact of implementing these measures has been materially curtailed. On 23 June 2009 the ESCB and CESR published "Recommendations for securities settlement stems and recommendations for central counterparties in the European Union". The main aim of the ESCB-CESR recommendations is to promote efficient, safe and sound pan-European post-trading arrangements in order to facilitate greater confidence in securities markets, ensure better investor protection, contain systemic risk and foster financial stability. Furthermore, the recommendations seek to improve the efficiency of the market infrastructure, which should in turn promote and sustain wider financial market integration and efficiency in Europe. Investment risks are usually one of the most important types of risk an insurance company is confronted with. To mitigate investment risks, insurers often invest in various markets to spread their exposures. It is, therefore, important to analyse the conditions in the markets in which insurers invest and to combine this information with that on insurers’ investment exposures to assess insurers’ investment risks. This box proposes some measures of investment uncertainty, from an insurer’s perspective, for the key markets in which insurers invest. It combines these measures with investment exposure data for a sample of large euro area insurers to assess their overall level of investment risk. The financial turmoil has highlighted the importance of counterparty risk management for banks. An issue of particular relevance in this context has been counterparty risk that may crystallise through the over-the-counter (OTC) derivatives markets, as shown by the acute difficulties experienced by market participants in the aftermath of the default or near default of Bear Stearns, Lehman Brothers and AIG. These cases have highlighted the typically opaque linkages within the OTC markets, which led to a situation in which some market participants may have become too big or interconnected to fail. In view of these developments, the ESCB’s Banking Supervision Committee (BSC) carried out a study aimed at assessing the counterparty risk and the main related risks faced by European market participants that are active in, and exposed to, the credit default swap (CDS) market. The report was based on survey data collected from a sample of 31 EU banks, as well as from a number of public and private data sources, and has benefited from market intelligence. This box summarises some of the main findings and policy measures outlined in the report. In response to the intensified financial market stresses in the autumn of 2008, euro area governments implemented coordinated support measures to alleviate strains on their banking systems. These measures complemented the extensive liquidity support that has simultaneously been provided by the ECB. This box summarises the public measures that have been taken and discusses their implications for euro area governments’ fiscal balances.