This requires greater transparency and a recognition that a sound financial system is one that practices the traditional banking values of integrity and faithfulness. Some of you might recall that these values were captured in the motto of The Chartered Institute of Bankers, “Probus et Fidelis”. It is perhaps a sign of the times that the Institute’s current logo of two overlapping arrows is, we are told, all about its core value: winning, a value which some market players have pursued with excessive zeal with the calamitous results we all know. It is just possible that we might not have been where we are today had the old, but tested values continued to prevail. 6  BIS Review 155/2008
The end of the Bretton Woods era gave rise to an IMS that is mostly based on principles, which are discussed in fora such as the G7, G20 or the OECD and BIS. In particular, one principle holds that multilateral financial safety nets should be available to countries facing large financial market disruptions caused by major external shocks. Like any insurance-providing scheme, the IMS is incentives-based. The incentives for any economy to access the IMF’s credit lines, bilateral swap agreements or regional balance of payment support facilities depend on the conditionality embedded in each of these mechanisms, as well as on the degree of self-insurance acquired by this economy, e.g. through foreign exchange reserves. The problem here is that conditionality is not always explicit, nor is it consistent across instruments, providing a fuzzy set of incentives – and therefore a bias towards self-insurance. This may create arbitrage opportunities across facilities (in other words, a “race to the bottom” of conditionality, encouraging moral hazard) and, ultimately, a bias towards self-insurance, a sub-optimal way to deliver global stability. There is scope for improving the consistency of these facilities both horizontally across institutions and vertically between the global and regional level. A different set of incentives stems from the surveillance carried out by the IMF and other institutions and fora.