Just as important, prices from liquid markets are valuable information, which can help market participants to allocate resources and manage risk more efficiently. If they work well, markets in credit risk transfer have the potential to enhance financial stability and efficiency by ensuring that exposures to shocks are diffused throughout the system, with no single player excessively exposed. Unfortunately, however, where there is innovation, there are generally questions and I have three. My first is a concern about lack of transparency. These markets mean that a bank need no longer remain exposed to its main customers but can rapidly take on large exposures to other credits without any new borrowing by the underlying entities. This could make it more difficult for creditors, shareholders and regulators to assess risk. From the point of view of financial stability, the concern is that these instruments might equally be used to concentrate risk as to disperse it. Careful monitoring and management of counterparty risk exposures by firms is an important market mechanism to limit this risk. But any individual firm does not know how much total exposure a counterparty has to a particular credit through its transactions with other market participants. These concerns underline the importance of the disclosure elements of the new Basel proposals intended to promote market discipline - I have more to say on the Basel package in a moment.
The probable continuation of the current upswing on the mortgage and real estate markets means that risks to financial stability are likely to remain in the spotlight. Containing these risks will continue to require the participation and support of all market players: the authorities, the lenders, and the borrowers. Thank you for your attention.