Three areas in particular are discussed: •  Data and Communications: to allow a better understanding of network dynamics following a shock and thereby inform public communications. For example, learning from epidemiological experience in dealing with SARs, or from macroeconomic experience after the Great Depression, putting in place a system to map the global financial network and communicate to the public about its dynamics;  •  Regulation: to ensure appropriate control of the damaging network consequences of the failure of large, interconnected institutions. For example learning from experience in epidemiology by seeking actively to vaccinate the “super-spreaders” to avert financial contagion; and  •  Restructuring: to ensure the financial network is structured so as to reduce the chances of future systemic collapse. For example, learning from experience with engineering networks through more widespread implementation of central counterparties and intra-system netting arrangements, which reduce the financial network’s dimensionality and complexity. Networks and finance are not complete strangers. There has been growing interest among network theorists in applying their techniques to financial phenomena over the past few years. For example, network techniques have already been applied extensively to the  2  BIS Review 53/2009  dynamics of payment systems and inter-bank networks. 1 But the financial crisis of the past two years provides both a greater body of evidence, and a stronger incentive, to apply the lessons from other network disciplines to the pressing problems facing financial policymakers today.

It embeds across Europe the core principles necessary for sound regulation, namely: •  appropriate market-based valuation methodologies;  •  a comprehensive measure of risk and solvency covering all group activities; and  •  capital resources of an appropriate quality to absorb loss. Solvency II is the biggest change to insurance regulation in a generation, and it will be live in just over a year. While our shared history with ICAS means the UK insurance industry is relatively well placed, we must not underestimate the scale of the challenge. Even the standard formula, which nine out of ten UK insurers will use to determine their solvency requirements, is significantly more advanced than the Solvency I approach it replaces. Although more demanding, we have worked to ensure the standard formula does not impede your provision of long-term finance to the real economy. Steps have been taken to make Solvency II more accommodative of securitisation. And in parallel, the Bank of England has been working with the European Central Bank to remove other impediments to the revitalisation of securitisation markets, including pushing for revisions to regulatory requirements for banks and for the development of simple, transparent and consistent products. Where the standard formula is not a good fit for a firm’s risk profile, firms will be asked to consider developing a partial internal model; making an application for an undertakingspecific parameter; or adjusting their underlying business model. Many of you in this room are acutely aware of the demands of the Solvency II model approval process.