Everybody seeks to ride the wave created by general sentiment, hoping to step off before the general sentiment turns. The second explanation is that global markets are in fact less atomistic than we think. Indeed, despite globalisation, increasing market concentration was already a long-term trend before the crisis. Derivatives activity in the US banking system, for example, is dominated by a small group of large institutions. And, of course, the market for credit ratings is famously dominated by three signatures, which act as standard-setters for an enormous volume of transactions. Many regulatory initiatives are underway to remedy these issues, including work on OTC derivatives, ratings agencies and alternative investment vehicles. But addressing these challenges could also be supported by reorienting significant resources in research. In particular, I would welcome an enrichment of thinking in economics and finance, by including new approaches that do not necessarily rely only on the notions of equilibrium, universal rationality and efficiency. Inspiration from other fields, such as the natural sciences, may be particularly pertinent. I am thinking for example of market movements from stability to instability, from tranquillity to turbulence. In physics such phenomena are described as phase transitions. When some factors exceed a critical level, a system behaves qualitatively differently from a situation when the factors stay below this level. Let me now turn to the third building block of regulatory reform, macroprudential supervision. III. Macroprudential oversight  As my earlier remarks have suggested, the financial crisis has been revealing in many respects.

Jean-Claude Trichet: Taking stock on financial reform Opening speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the Frankfurt Finance Summit, “The future of risk management and regulation: smarter regulation, safer markets”, Frankfurt am Main, 23 March 2011. *  *  *  Ladies and Gentlemen, I am very pleased to be able to open this conference here at the House of Finance in Frankfurt. Frankfurt now hosts three European institutions: the European Central Bank (ECB), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Systemic Risk Board (ESRB). This city is now the home not only of Europe’s monetary authority, but also of important supranational responsibility for supervisory matters. With the EIOPA and the ESRB, Frankfurt hosts half of the European bodies in the new European System of Financial Supervisors, with the other two European Supervisory Agencies (ESAs) – the European Banking Authority (EBA) and the European Securities and Markets Authority – based in London and Paris respectively. I have looked with great interest at today’s programme, which is of exceptional quality. In my opening remarks, I would like to lay out a scheme of the building blocks of the financial reform that is still in progress. I believe that when we look back in a few years on the financial reform following the global crisis, we will identify three main building blocks: The first is banking regulation. The global community is making a big step forward here.