To improve transparency on risk exposures, particular attention must be paid to the obligation to consolidate the accounts of financial vehicles, even if not affiliated, whenever banks exercise substantial control and bear the ultimate risk. To take account of the effective risk for prudential purposes, vehicles that are largely controlled by banks should also be consolidated when capital requirements are established.
In order to contain model risk, additional efforts must be directed at refining the methods used to value SF products. Banks’ liquidity management must also be improved, with reference to liabilities no less than assets, to increase our understanding of the relation between market liquidity and banks’ funding liquidity risk.