The challenge, now, is to calibrate and phase in the new framework in a way that does not impede the recovery. The macroeconomic assessment of the reforms underway will help us strike the optimal balance. 25. Beyond capital and liquidity, other important initiatives are aiming at addressing systemically important financial institutions and cross-border resolutions. To better deal with the problem associated with systemic firms, progress is being made to improve the capacity to resolve them orderly, and to strengthen ex ante preparedness, contingency planning, cooperation and information exchange among the relevant authorities. 4  BIS Review 113/2010  26. There is a broad agreement for an approach that may have two pillars. One is about tools and measures to limit the risk of their failure; the other is about tools and measures to limit the consequences of their failures. Discretion is required to allow national authorities to strike the balance between the two pillars and tailor regulatory and supervisory actions to domestic conditions. The challenge is to ensure that national policies to address the risks associated with these firms are consistent, mutually supportive and thus avoiding regulatory arbitrage. But beyond international initiatives, enhancing supervision at the domestic level remains very critical. 27. Higher and better capital and liquidity standards are not sufficient conditions to secure the stability of the financial sector. Changes in the practice of micro-prudential oversight are also needed. Indeed, a lesson from the crisis is that the way supervision was performed prior to the crisis has likely contributed to it.

We, at Banque de France, firmly support the current focus on reducing the scope of mark-to-market accounting and moving from an incurred loss model to a forward-looking model for provisioning. We expect that accounting standards will converge but this should not come at the expenses of these two dimensions. 22. Thirdly, the crisis also raised questions about the nature of our regulatory frameworks. There is a trend towards complementing the micro-prudential supervision with macro-prudential oversight. In Europe we are putting in place a Systemic Risk Board at the European Union level that will combine expertise from Central Bank Governors and supervisors in charge of banks, insurance companies and securities markets. In the US, the Financial Stability Oversight Council is also a landmark in the overhaul of the financial supervision architecture. 23. Soon, the European Council will grant the ECB a special assignment regarding financial stability with the responsibility to run the European Systemic Risk Board. This should not be seen as constituting an additional objective of monetary policy. Rather, the creation of this Board does not change the clear allocation of responsibilities enshrined in the Treaty. The international initiatives about to be finalized will strengthen prudential frameworks and make financial systems less prone to systemic shocks. 24. One such initiative is the commitment by all G20 jurisdictions to implement Basel II by 2011 and to finalize this year a new package aimed at strengthening bank capital and liquidity standards. This is a great achievement.