From this followed an official obligation to treat all types of risk in the monetary union bank risk or government risk as identical.

All these non bank institutions are now potentially at risk of a liquidity run.

The European Union wants to establish a European Systemic Risk Board composed of the national central bank governors, chaired by the European Central Bank.

What resulted was a wonderful system for diversifying individual bank risk, but only by magnifying the default risk of all banks that held what came to be called toxic debt.

Given the dubious benefits of still lower real interest rates, placing central bank credibility at risk would be irresponsible.

By creating the European Central Bank, the member states exposed their own government bonds to the risk of default.

As recently as September and October, the United States Federal Reserve and the European Central Bank both saw the risk of inflation as being roughly equal to the risk to growth.

In order to identify social risks and potential responses, The World Bank developed a tool called Social Risk Management (SRM).

Moreover, unlimited quantitative easing by the Bank of Japan, the Federal Reserve, and the European Central Bank also increases the risk of volatile capital flows and asset bubbles in Asian emerging economies.

The European Union s approach to bank regulation encouraged financial institutions to load up on government debt supposedly a risk free asset.

Low risk central government bonds and central bank reserve requirements most of which are backed by substantial foreign exchange reserves account for 31 trillion of the 95 trillion in total commercial bank assets.

The Bank of England s Financial Policy Committee (FPC) said that the target should be 7 of risk weighted assets under Basel III definitions.

The bankers do not seem to have internalized a fundamental axiom of modern finance risk emanates from the assets that a bank holds.

This requires, first and foremost, determining who the investor or the bank bears the underlying default risk of high yield wealth management products.

According to a recent study by Columbia University and the World Bank, between 85 and 95 per cent of the population and GDP located in disaster risk hotspots globally are at risk due to climate related hazards.

But the metamorphosis tends to go hand in hand with localized monetary contractions that exacerbate the correlated risk of sovereign default and bank failures.

I've got friends who actually never use their own bank cash machines because there's the risk that it might display their balance on the screen.

However, late last year, Everbright Bank and some others began offering fixed rate mortgages. Take up has been slow, but the April 2006 surprise hike in bank rates may help to sow greater public awareness of interest rate risk.

Similarly, Mexico s tiered approach to financial access according to which requirements for opening bank accounts are proportionate to risk, with low value accounts subject to higher transaction restrictions has expanded access to basic accounts, while mitigating the risk of money laundering.

It is therefore up to policymakers to reduce the financial risk that the money market generates. But the prevalence of shadow banking institutions, which do not hold traditional bank charters and are not subject to bank regulation, complicates such efforts.

They range from subdued bank lending to unusually high risk aversion, and from discredited credit vehicles to the withdrawal of some institutions from credit intermediation altogether.

Motivating financial executives to focus on the effects of their choices on all those contributing capital to the bank would significantly improve their risk taking incentives.

But building institutions takes time, which is in dangerously short supply, given the risk of bank runs, sovereign debt crises, and the collapse of the single currency.

The eurozone, currently wrestling with fiscal imbalance and sovereign debt risk, has a strong and autonomous central bank, but is fiscally fragmented and only partly unified politically.

The critics arguments about the benefits of equity are equally unsatisfying. Of course, given a set of bank assets, more equity would reduce the risk of failure.

Significantly, two proposals that were most likely to meet German opposition Eurobonds to pool risk and the transformation of the European Stability Mechanism into a bank that could borrow from the European Central Bank were removed from his draft memorandum to European leaders.

They point to the fact that the world's major central banks the Federal Reserve, the European Central Bank, and the Bank of Japan have so firmly established their anti inflation credibility that the inflation risk premium has been wrung out of interest rates.

A high value inter bank funds transfer system settles transactions in real time, eliminates credit risk between system participants, increases circulation of funds, and enhances monetary policy implementation.

In the face of high systemic risk, private capital is leaving banks and the sovereign debt markets, causing governments borrowing costs to rise and bank capitalization to fall.

Usually, the bank takes months to process the application, and may demand a bribe even in the unlikely event it is willing to take on the credit risk.

Why impose restrictions on a dealmaker who earns a large fee for arranging a merger that imposes no risk on the bank after the transaction has closed? The same is true for a trader who makes money on spreads rather than from taking on risk.

A prolonged and sustained central bank policy of purchasing ever increasing quantities of long term assets is essential to encourage a wary financial sector to use some of its risk bearing capacity for its proper purpose reducing the risk burden on entrepreneurship and enterprise.

Some of the ideas discussed during the consultations include suggestions for mechanisms to mitigate regulatory risk to increase the role of the World Bank and regional development banks in risk mitigation through increasing the leverage for their guarantees and to strengthen local currency lending.

The International Monetary Fund and the World Bank can serve as lender of last resort to emerging markets at risk of losing market access, conditional on appropriate policy reforms.

Since 2003, over 16 new banks have opened in the country, including Afghanistan International Bank, Kabul Bank, Azizi Bank, Pashtany Bank, Standard Chartered Bank, and First Micro Finance Bank.

Due to privatization of state owned enterprises and improved financial regulation, including bank supervision and risk control, since 2000 both central and local budgets have basically been in good order.

In the UK, a Financial Policy Committee within the Bank of England is to monitor the systemic risk of financial failure, with a Prudential Regulatory Authority supervising systemically important institutions.

The trouble is that few outsiders seem to be listening, much less preparing to confront the eventual limits of central bank effectiveness. As a result, they risk aggravating the potential challenges.

For Israel, a future as a bi national state entails a high long term risk, unless the option of a West Bank Jordan confederation, lost in the 1980 s, is rediscovered.

But failure is not always a bad thing a banker operating an all equity bank, with no need ever to repay investors, would be likelier to take unwarranted risk. The need to repay or roll over debt imposes discipline, giving the banker a stronger incentive to manage risk carefully.

GDP risk is a long term risk.

The immediate causes are well known. They range from subdued bank lending to unusually high risk aversion, and from discredited credit vehicles to the withdrawal of some institutions from credit intermediation altogether.

And leading bank executives still insist that they should be allowed to run highly leveraged global businesses, in which they are paid based on their return on equity unadjusted for any risk.

Indeed, simply by providing a credible backstop against the risk of a eurozone collapse, the scheme has become one of the most successful measures introduced by any central bank in recent history.

By transferring their right to print money to the European Central Bank (ECB), member countries exposed themselves to the risk of default, like Third World countries heavily indebted in a foreign currency.