To some degree, this is perhaps what has happened to value-at-risk based techniques, which have been massively adopted by the financial industry. Because they use more or less similar parameters and have the same features – for example, they took inadequate account of market liquidity at the time of the 1998 crisis –, such tools tend to give converging signals to those that use them. They thus encourage the herd behaviour that I discussed previously. -  Of course, the fact that some market participants are more sophisticated than the average is a guarantee that standardisation will remain limited, since they will develop techniques that are little used by others. -  However, supervisors are helping to spread the idea that financial institutions should round out their current range of risk management tools to include extensive use of stress testing. This technique offers a better reflection of the varying situations of institutions and of the diverse perceptions that institutions have of exceptional events. The application of stress testing techniques and their results are thus inherently more diversified than those resulting from methods based on the value-at-risk approach. These are only examples of options to help improve the functioning of markets. Indisputable progress has already been made: the generalisation of concepts of appropriate transparency since the Asian crisis and the comprehensive use of stress testing are two significant examples. However, I would like to stress one point.
So when one emerging economy encounters difficulties, all neighbouring countries, or countries that share common characteristics, are treated in the same way – regardless of their actual economic and financial situation. The same applies to businesses operating in the same economic sector. Transparency has substantially increased since the Asian crisis thanks to a solid global consensus – let us continue and reinforce these efforts-  BIS Review 49/2001  5  2.2.2  Take into account the medium and long-term perspective of some market participants:  -  Some investors, such as pension funds and insurance companies, have to invest funds in order to enable their customers to build up wealth over the medium and long term, notably in preparation for retirement. Consequently, this type of investor are supposed to behave differently from traders and short-term investors, who are working on a very different time horizon. But at times it seems that they are all pushed to behave in much the same way, on the basis of an overwhelmingly dominant very short-term horizon. -  To preserve, and even restore, their specific investment approach, these particular investors might be more shielded from excessive short-term pressures. This objective raises considerable difficulties, because it touches on the way in which the performances of medium and long-term funds (including pension funds) and life insurance companies are assessed. 2.2.3  Diversify the risk management tools of financial institutions:  -  As I mentioned earlier, even the best techniques can have adverse effects.