These focus both on “hard infrastructure”, including payment and settlement systems, and on “soft infrastructure”; standard-setting in areas like accounting, audit, prudential and legal standards. We also analyse key developments in the international arena, for example in relation to threats of failure of emerging market economies and response to this. 12. Public policy response - institutional  As to the second area - the institutional response - there are both national as well as international dimensions. On a national basis, countries increasingly recognise the distinction between supervision (looking at the individual institutions and markets) and the systemic factors involving concentrations, interrelationships and behaviour in relation to the system as a whole. Each is an essential element in the provision of financial stability oversight. In relation to supervision, in some jurisdictions - including the UK, Japan and Germany - all the supervisory functions are carried out within one institution. In others they are handled by different agencies. Certain countries have combined questions of the systemic issues with those of prudential oversight, and then put the investor and consumer protection aspects of regulation into separate agencies [the “twin peaks” approach adopted in Australia and France]. Yet others still survive with a multiplicity of agencies. The US is a case in point - and it is worth noting that, despite all its complexities and conflicts, the health of the US financial sector as well as its economy do not appear to have suffered unduly, despite episodes like the savings and loan crisis.
Implications of the new environment for financial stability oversight  It will be clear from the litany of issues I have just mentioned - new players, new products, new risk transfer techniques and interconnections - that the changes in today’s financial world are indeed quite profound in relation to financial stability oversight. But are they net benign or net negative? The world here is sometimes portrayed as being in two designated camps. This may be a bit of a parody, but I am sure the two protagonists would forgive my little sketch. The bullish view is led by Governor Greenspan. This holds that, in the new financial world, banks now possess the enhanced ability to disperse risk - to offload risk to others, be they investors, insurance companies or whatever. The banks have thereby been able to weather a variety of shocks, which in an earlier age might well have engendered financial instability. The Asian crisis, Russia, 9/11, Enron: I could go on. In each case the banks came through and the financial system has demonstrated greater resilience as derivatives and sophisticated risk transfer processes have dispersed risk to a wider audience. The bearish camp is led by Warren Buffett. This points out the opacity of today’s world: the difficulty of spotting risk concentrations; or judging the behavioural expectations in the face of given types of shock. My view would be that both schools of thought are right! I think in reality it depends on your vantage point. There has been improved capital formation.