But I do believe there are areas in which change could beneficially be made, which would have the effect of strengthening the international financial architecture, to the benefit of us all. There are four areas in which I would like to see further improvements. First, we need a comprehensive set of international accounting standards which attract broad support, and high quality independent audit to help enforce them. Second, the role of the Financial Stability Forum could be developed and strengthened. Third, and linked to that change, there are gaps in the global regulatory system which could and should be plugged. Fourth, we need to find ways of bringing developing economies more closely into the process of setting standards. I will say a word or two about each of these suggestions. (i)  Accounting and auditing  Accounting standards are the foundation stone of the financial system, and of financial regulation. Without accounting numbers in which investors can have confidence regulation, cannot hope to be effective. And those accounts must be audited objectively and independently. Since the reformation of the International Accounting Standards Board three years ago a determined effort has been under way, led by Paul Volcker and David Tweedie, to complete the standard set and  BIS Review 25/2003  3  secure broad agreement to their acceptance around the world. They are now close to success, but there are some difficult obstacles still to be overcome, notably the question of the treatment of financial instruments (IAS 39).
But the more important question remains whether the institutional framework for overseeing financial markets, seeking to prevent crises and, when prevention fails, to manage them, is adequate. Open financial markets will always be prone to bouts of irrational exuberance, but do we do enough to contain the collateral damage which excessive volatility can cause? Some academics, notably John Eatwell at Cambridge, argue that we need a fundamental recasting of the international financial institutions. He favours the creation of World Financial Authority charged with setting the regulatory framework for financial markets across the globe, and endowed with powers of intervention when crisis threatens. His arguments are persuasive, but it seems unlikely that countries will be prepared to cede sovereignty to such an authority on a scale which would be necessary to make it work effectively. There have been many other less ambitious proposals, both from within the IMF and the World Bank, and from individual countries. For a time it seemed as though the creative departments of every  BIS Review 25/2003  1  Finance Ministry in the world – if that is not an oxymoron – were engaged in a kind of architectural competition to draw up a new set of relationships between the international financial institutions, their member countries, and the key regulatory organisations in the financial sector. On the face of it, the changes made as a result of this frenzy of creativity have been very modest. No major new institutions have been set up.