Let me highlight three areas where improvements in the robustness of the financial network seem feasible: mapping; regulating; and restructuring. (a)  Mapping the network  The SARS episode may be remembered by historians as an overblown economic reaction to a small health risk – that was Nobel Laureate Dr David Baltimore’s prognosis. But there is an alternative reading of the runes, one which offers some lessons, and not a little hope, for financial policymakers. In 2000, the World Health Organisation (WHO) established the Global Outbreak Alert and Response Network (GOARN). This brings together over 120 international institutions and networks to share resources to better identify and manage outbreaks. In the case of SARS, the speed and scale of response was striking. On 12 March 2003, less than two weeks after the Hong Kong outbreak, the WHO issued a global health alert. On 15 March, a “general travel advisory” was issued. By 17 March, a network of scientists from 11 laboratories in 9 countries was established to devise diagnostic tests, analyse samples and share results in real time. This allowed national agencies to promulgate information quickly and widely, with governments in Thailand, Malaysia, China,  22  For example, Bank of England Financial Stability Report, October 2008. BIS Review 53/2009  11  Singapore and Canada each imposing some combination of travel bans, quarantining and public health notices.
This means (1) a system in which the major institutions are less vulnerable to shocks; (2) a system that is less vulnerable to margin spirals and a generalized pull-back in liquidity and funding; and (3) a system that is more able to withstand the effects of failure of a major financial institution. Looking past the immediate crisis, a more resilient system must be built on stronger and better designed shock absorbers, both in the major institutions and in the infrastructure of the financial system. At the level of the financial institution, the key financial shock absorbers are capital and reserves, margin and collateral, liquidity, and the risk management and control regime. Financial stability starts with ensuring that individual institutions in periods of expansion and relative stability hold adequate resources against the losses and liquidity pressures that can emerge in economic contraction or instability. For the infrastructure of the financial system, these shock absorbers include the resources held against the risk of default by a major market participant across the set of private sector and cooperative arrangements for the funding, trading, clearing and settlement of financial transactions. Simplifying and consolidating the regulatory architecture will be instrumental to these efforts by establishing a common framework of rules, clear responsibility and authority, and by reducing opportunities for arbitrage. Through close coordination across central banks, supervisors and market regulators, we need to adopt an integrated approach to the design and enforcement of capital standards and other prudential regulations critical to systemic stability.