Two directions in which we probably have to go in order to make progress are to generally integrate more realistic characterisations of financial systems in macroeconomic models and to capture the relevant nonlinearities that are so typical for the unfolding of financial crises. 9.
Moreover, Basel I is particularly inadequate for dealing with capital-markets transactions, such as repurchase agreements, securities borrowing and lending, margin loans, and overthe-counter (OTC) derivatives. For example, the existing Basel I rule only imposes capital requirements on one side of a repurchase agreement, even though counterparty credit risk is present on both sides.