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Abstract
As the lenders of last resort for financial systems, central bankers have reason to be concerned about the potential risks to domestic banking systems arising from actions that impose unforeseen liabilities on domestic banks. There seems to be a consensus that private sector participants in economic activities should bear the ultimate responsibility for the risks they assume in running their businesses. They consequently need to be able to predict and quantify the risks they are likely to encounter. Armed with these predictions they can draft contracts in such a way that they assume the risks that they are willing and able to assume, and shift the remaining risks to the other contracting party, which will bear responsibility for them. The ultimate test of such contracts is whether they accurately reflect the expectations of the parties and whether the courts will enforce them in accordance with their terms and with applicable law of the jurisdiction.
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