On this opportunity, I wish to quote the three premises which, according to Donald Kohn 4 , the Federal Reserve Vice Chairman, are necessary to justify the activities undertaken by central banks to pursue this aim:  1  Borio C., Lowe P. Asset Prices, Financial and Monetary Stability: Exploring the Nexus, BIS Working Paper, No. 114, July 2002. 2  See references at the end of the speech. 3  Rybiński K., Globalizacja w trzech odsłonach, Difin, Warszawa 2007. 4  Kohn D., Remarks by Donald Kohn at Monetary Policy: A Journey from Theory to Practice, An ECB Colloquium held in honor of Ottmar Issing, 16 March 2005. BIS Review 134/2007  1  •  a central bank must be able to identify bubbles on an asset market in a timely fashion with reasonable confidence as to the adequacy of the findings of its analysis,  •  there must be a fairly high probability that a modestly tighter policy will help to check a further expansion of speculative activity on a given asset market,  •  the expected improvement in future economic performance must be sizeable and bigger than expenses disbursed by the economy as a result of conducting those activities.
Our approach will be explicitly forward looking. And we have no hidden agenda. Where we judge changes that are already under way to regulation, firm-level controls, market structure and technology are sufficient to restore fairness and effectiveness, we will say so. Where we do not, we will make recommendations on the most important priorities for change. A defining characteristic of our Review is a recognition that improving fairness and effectiveness is a shared responsibility between individuals, firms, the market as a whole and the public authorities. As I said at the outset, we believe that markets – when they work properly – are the best source of dynamism, prosperity and progress. So I expect that a key part of the Review’s final recommendations will consist of firm- and market-led initiatives. With that in mind, we will draw on input from an independent panel of senior market practitioners, chaired by Elizabeth Corley of Allianz Global Investors, and bringing together senior representatives of internationally active market participants and investors, market infrastructure providers, major corporate users of financial markets, and independent members. The final recommendations of the Review will be made by me and my co-chairs with the support of the excellent team we have assembled. But we hope the Panel will help launch and take forward those parts of the final recommendations requiring active market ownership. Where firm-led solutions are not enough to improve fairness and effectiveness, targeted interventions by the authorities will also be part of the Review’s toolkit. Where might the solutions lie?