this research area would be to find a way to combine the power of data - intensive nonlinear analytics to uncover hidden relationships in the data with a proper understanding of the underlying economic mechanisms at work. in any case, given the limited number of crisis observations, it might be advisable to also use clever theoretical models to gauge future risks. the models could be used to produce scenarios of adverse developments, even such that may not have yet happened in the past. to adapt the idea of a famous physicist in the opera dr. atomic, written by peter sellars, perhaps experts in financial stability analysis should regularly “ indulg ( e ) in controlled fantasies, trying to dream up new … phenomen ( a ) that ( are ) not contrary to our knowledge, but perhaps beyond our experience ”. 5. conclusions to conclude, let us not forget that trust remains the necessary precondition for well - functioning financial markets. building and maintaining trust will ultimately determine the success of the developers of financial services based on new technologies. regulation and supervision are necessary backstops to the new developments, and they must evolve with the times. thank you for your attention! 5 / 5 bis central bankers'speeches

it has been argued that the total valuation and income losses facing the global financial system are clearer. yet considerable uncertainty still remains about the reliability of total cost estimates and about how the costs will eventually be spread. there is also uncertainty about the possibility of feedback effects onto the financial system, including questions about what the ultimate impact on the intermediation of credit – both through financial institutions and markets – will be. moreover, until conditions in the us housing market show signs of improvement, the possibility of continuing tensions in structured credit markets cannot be excluded. in the period ahead, large euro area banks are likely to face pressure on their revenues on account of lower activity levels in the structured credit markets as well as from a general retrenchment from risk - taking across many business lines. at the same time, the banks are facing increased funding costs. consistent with this, a number of financial market indicators – including bank equity prices and credit default swap spreads – have generally been reflecting expectations of weaker profitability as well as concerns about credit and counterparty risks. on the positive side, several years of strengthening profitability had by mid - 2007 left the euro area banking sector in a strong financial position to face the possibility of a credit cycle downturn. all in all, given the heightened uncertainties, and in an environment where balance sheet conditions could unexpectedly change, vigilance is more than ever of the essence. financial institutions will need to step up their efforts to effectively manage the risks that may lie ahead. from the central banks ’ perspective, restoring confidence among economic agents and market participants is crucial in the current environment of great uncertainty and high market volatility. one very important contribution the ecb makes to preserving confidence is to continue firmly anchoring medium to long term inflation expectations for the euro area while at the same time ensuring the smooth functioning of the short - term money market. at the current juncture, priority has been given to comprehensively draw lessons and formulate policy responses to address the challenges raised by the financial market turbulence. the key areas have been identified and since my last hearing before you, work has been progressing intensively both internationally and in the eu. the financial stability forum and the ecofin have developed preliminary assessments warranting further policy action. in that context, let me mention some areas i see as requiring timely responses : first, with regard to improving disclosure and valuations of structured finance products, financial institutions are called upon to promptly and fully disclose on - and off - balance sheet risk exposure