The ECB is monitoring developments in this area, and I believe that providing clear guidance on this issue is pivotal to improving the confidence in and the comparability of banks’ financial statements. Finally, another area where good progress has been made under the impulse of the FSF concerns the role of credit rating agencies, which is being clarified thanks to new regulation by the SEC and the revision of the IOSCO Code of Conduct. At the same time, in Europe, the European Commission will engage in regulatory initiatives for the credit rating agencies’ authorisation and supervision. Let me now focus on three issues which I believe are especially important in the current context and for which transatlantic cooperation between central banks and financial regulators is warranted, namely risk management, procyclicality and financial stability arrangements. With regard to risk management, it has become clear that the current situation in the financial markets originated for the large part in excessive risk-taking and leverage by financial institutions. A key explanation for this behaviour lies in banks’ risk management systems, which did not appropriately price risks, resulting in the creation of capital and liquidity buffers that (in many cases) proved insufficient to insulate them from the dislocation in the financial markets. Furthermore, liquidity risk did not receive enough attention in banks’ overall risk management. Strengthening risk management techniques and procedures is key in the current context.
These measures, which reflect the increasing intermediation role assumed by the Eurosystem during this period of turbulence, have contributed to the stabilisation of conditions in the euro money market, to containing the volatility in the very short-term rates,  2  BIS Review 123/2008  especially in the overnight rate as measured through the so-called EONIA, and to limiting somewhat the volatility in the three-month Euribor, even if the behaviour of the money market remained extremely tense, as was also the case in New York. Cooperation between central banks in the field of monetary policy It is important to recall that as the financial market turbulence developed , central banks strengthened the already remarkable levels of cooperation, first, through enhanced information exchange and collective monitoring of market developments and, later on, through coordinated steps to provide liquidity. Since December 2007, the ECB, in cooperation with the US Federal Reserve System and the Swiss National Bank, has been conducting term auction facilities – so-called TAF operations – in which it provides USD liquidity on behalf of the US Fed to euro area banks against ECB eligible collateral. These operations do not have a direct impact on euro liquidity conditions and are aimed at improving global funding conditions. In this respect I would like to stress that to my knowledge this was the first joint action of that kind ever taken by central banks to relieve pressures in the short term funding markets.