But one must try to assess in what areas there are clear market failures and how society should best act to remedy these. The usefulness of new regulations must also outweigh the costs. Unfortunately, the existing regulations are designed so that they have in some respects encouraged rather than limited risk taking in the current crisis. Speedy and short-term changes in regulations should not be allowed to prevail. But experience unfortunately shows that political eagerness to quickly furnish new regulations often prevents a more in-depth analysis of the problems. Which areas of the international regulatory framework are in most urgent need of review? Essentially, of course, the problem is that the risk taking was too great in relation to equity capital. Both the trend towards increased securitisation and a focus among financial institutions on short-term activities have contributed to an increase in risk taking. It is of course important to eliminate any loopholes in the capital adequacy rules, and the capital adequacy requirements in both banks and other financial institutions will probably need to be tightened once we have come through the financial crisis. It is undeniable that the liquidity risks have been underestimated and a review of the banks’ management of these risks will be necessary. It is also evident that increased insight is necessary, both into the banks’ balance sheets and into certain markets and instruments. Some products that have been common outside of Sweden have had such complicated structures that they have been difficult to understand and to valuate.

Additionally, some firms are considering how to expand analysis to more indirectly impacted sectors, such as transportation and industrials, or to move beyond lending exposures to trading positions. Finally, firms are evaluating how to best execute on public commitments to transparency in the climate space. Nearly all global systemically important banks, including all eight U.S. G-SIBS, have signed onto the Task-Force for Climate-Related Financial Disclosures (TCFD), and many of these have started disclosing under this framework to various extents.5 Firms continue to be challenged in the identification and measurement of climate risk embedded in their portfolios, however, so these disclosures may take some time to develop as the industry considers how to 2/4  BIS central bankers' speeches  establish common standards. Role of Supervision I’ll turn now to the perspective of a bank supervisor.6 In the context of climate change, in my view, bank supervision should focus on ensuring that appropriate risk management frameworks are in place, rather than using supervisory tools for broader objectives. That is, supervisors can focus on identifying and managing risks, both microprudential and macroprudential, that emerge along a transition path to a more sustainable economy. Bank supervisors, however, are not in the position to advocate for, or provide incentives for, a particular policy outcome. Those broader policy goals are the purview of elected officials and governments, and policymakers. Supervisors can and should use our oversight tools to ensure financial institutions are prepared for and resilient to all types of relevant risks, including climate-related events.