Reforming and adapting financial regulation remains an urgent priority. G20 Leaders have agreed on detailed principles and a roadmap. The newly formed Financial Stability Board has the difficult task of steering regulatory reform. We are very fortunate that the FSB, as well as the Basel Committee, has been enlarged and become a true reflection of the world economy. As you may know, the European Union is moving towards the creation of a new European Systemic Risk Board (ESRB) which will be responsible for macro-financial supervision and will draw extensively on the resources and expertise of the Eurosystem. In France, the Government has decided to create a single authority responsible both for banking and insurance supervision, with very close links to the Central Bank. This will enable us to look at the state of and developments in the financial system from a truly systemic perspective. Much remains to be done. Let me outline the main objectives. In the current circumstances we should (1) try and keep up the momentum in the pursuit of reforms, (2) achieve balance in the implementation of the agenda; and, (3) ensure consistency between our regulatory actions and macroeconomic policy. Keeping up the momentum Over the last few weeks, major international banks have announced impressive quarterly profits. It is striking that these performances were achieved only a few months after some of those same institutions came very close to failure. This might give the impression that the financial sector has recovered its balance and that no further reforms are necessary.

They need stronger and robust risk management and better governance in all parts of the financial industry. They need increased oversight and stronger supervision of systematically important institutions. As a result of the crisis, the financial system will be permanently changed. Reforms will make it possible to increase its efficiency and, at the same time, improve its stability. This will be achieved through stronger international cooperation. It is very significant that the leaders announced in Pittsburgh that Basel II will soon become a truly international standard and, at the same time, it will be reformed and adapted to take on board the lessons of the crisis. Striking a balance The regulatory agenda is comprehensive and complex. It has been thoroughly debated. It has to be taken as a whole and cannot be implemented in a piecemeal fashion; otherwise we would recreate distortions and new possibilities of regulatory arbitrage. Let me give you two examples. First, on procyclicality. It is widely recognized that, in the past, prudential and accounting regimes have increased the procyclicality of financial systems, especially in boom periods, by encouraging excessive risk taking. Accordingly, reforms are being considered both in the capital and accounting frameworks. As a consequence of decisions taken by the G20 and the FSB, countercyclical capital requirements will be implemented by the Basel Committee and accounting standard setters have been asked to put in place a countercyclical provisioning regime. While respecting the independence of standard setters, it is very important that these two efforts progress in parallel.