Alexandre Lamfalussy, general manager of the BIS, which co- ordinates international banking regulation, said banks must become more sensitive to the risks arising from the huge growth of derivative products.
This had made bank balance sheets harder to read and made it difficult to see what was happening when shocks hit the financial system.
He said: 'The phenomenal growth of derivatives and associated trading techniques has reduced the transparency of market participants' balance sheets and has obscured the transmission of disturbances across market segments and institutions.'
Mr Lamfalussy was speaking to bankers at the annual meeting of the International Monetary Conference in Stockholm. The speech followed a set of new BIS requirements for banks that would raise the capital they set aside against risks in derivatives trading.
Mr Lamfalussy called for 'a major co-operative effort between market participants and the authorities'.Reuse content