•  Capital and liquidity buffers in place through regulatory minimums and firms’ own economic capital calculations, once viewed as robust, proved in many cases to be inadequate to absorb mounting losses during the crisis. In addition, the supervisory apparatus proved slow to recognize and address the full dimension of the problem, and when some large, systemically important firms approached failure, the public sector lacked the tools to resolve them. •  Difficulties arose in winding down large derivatives portfolios because of their size and complexity, the back office logistics and settlement risks associated with derivatives portfolios, and the lack of a sufficiently harmonized international legal framework to handle counterparty default or failure. •  At least some business models in place before the crisis proved to be unsustainable. At many large institutions, the heavy reliance on generating mortgage-related revenues, whether through flawed underwriting or creating highly complex securities, proved a vulnerability; some institutions lacked stable revenue streams robust to macroeconomic conditions; some relied heavily on funding from short-term markets such as the tri-party repo market. Regulatory reform The wave of regulatory reform, of course, corresponds to a considerable degree with the problems observable during the crisis. Take, for example, solving the Too Big to Fail problem. The regulatory and financial stability agenda being advanced by the Financial Stability Board and the Basel Committee on Banking Supervision is intended both to reduce the probability that large, systemically important firms could fail and to mitigate the costs of their failure, should that occur.

In my personal view, the reconsideration of business plans needs to incorporate the longterm macroeconomic and technology trends even as they incorporate the lessons learned from the financial crisis. Those business plans need to look ahead five years or more to position the financial firms and, with them, the financial system for the opportunities and risks that lie ahead. We will need to meet the long-term challenges of changes in the global macroeconomy, the distribution of growth opportunities and the distribution of wealth, and the speed and power of technological change. 4  BIS central bankers’ speeches  Since so much opportunity has developed elsewhere in the world, how will the public sector reform agenda impact the global banking activities of financial institutions? We do not know yet how the reform agenda will affect the international activities of G-SIFIs, although we can see some early indications. Higher capital requirements and more stringent prudential standards are causing some firms to re-examine their correspondent and business relationships and make new cost-benefit assessments. The greater focus on stress testing and resolution planning may lead to more discussion of firm structure, including the number of subsidiaries, the alignment of the corporate structure with the firm’s business activities, the management of intragroup exposures, the use of parent guarantees, and the correlation of the firm’s capital and liquidity structure with the firm’s business and legal entity structure. In my personal view, discussion will no doubt lead to action, in the best scenario, by the large, systemically important financial firms themselves.