BIS deputy governor Luiz Awazu Pereira da Silva produced some sobering thoughts at the 51st SEACEN Governors' High-Level Seminar in Manila late last month."Large and volatile capital flows not only pose a headache to emerging market central banks but are also an issue for advanced economies," da Silva said."Sudden floods and sudden stops were also an important element of the euro area debt crisis, only that central banks there had far fewer tools to deal with this problem than those in Asia or other emerging markets," he said."One way of looking at advanced economies policies that eventually led to the Global Financial Crisis is the 'risk-taking channel' in which large surges in lending in instruments denominated in reserve currencies (euro/dollar) to other smaller AE banks."Explaining the mechanism, da Silva said "specific sectors, corporates or governments grow, [and] bypass existing prudential regulation."He said these "develop into credit and/or asset booms, leading to further currency appreciation, sovereign yield compression and other typical features of such episodes."We are quite familiar with the transmission mechanism and the dynamics of how excessively rapid credit growth, buoyant economic activity and more permissive financial conditions facilitate the build-up of financial vulnerabilities."