agenda is comprehensive and complex. it has been thoroughly debated. it has to be taken as a whole and cannot be implemented in a piecemeal fashion ; otherwise we would recreate distortions and new possibilities of regulatory arbitrage. let me give you two examples. first, on procyclicality. it is widely recognized that, in the past, prudential and accounting regimes have increased the procyclicality of financial systems, especially in boom periods, by encouraging excessive risk taking. accordingly, reforms are being considered both in the capital and accounting frameworks. as a consequence of decisions taken by the g20 and the fsb, countercyclical capital requirements will be implemented by the basel committee and accounting standard setters have been asked to put in place a countercyclical provisioning regime. while respecting the independence of standard setters, it is very important that these two efforts progress in parallel. it is the combination of accounting and prudential rules which shape the incentives of investors and managers. partial reform, limited to the prudential field for instance, will not suffice and could even introduce additional distortions. the basel committee has come out with a comprehensive approach to capital and accounting reform to reduce procyclicality, embodied, in particular, in the principles for revision of ias 39 ( “ financial instruments : recognition and measurement ” ). it should be strongly supported. second, on leverage. excessive leverage has been a major cause of the crisis. in many instances, it could not be detected early enough, because attention was focused on riskweighted measures of capital utilisation. there is great merit, therefore, in introducing a leverage ratio as an essential tool of macro - prudential supervision. it is also envisaged as part of the capital requirement regime as a complement and " backstop " to risk - weighted measures. it may be almost impossible, however, to use it as a binding instrument on an international basis. the reason is simple : while it is relatively easy to measure the evolution of the leverage ratio over time for an institution or group of institutions, it is almost unfeasible to measure it consistently across countries, due to differences in accounting regimes and banking structures. an enormous amount of work is therefore necessary before integration of a leverage ratio into the basel framework can be implemented. in particular, full convergence in accounting measurements of both assets and capital is an absolute prerequisite. any attempt to short -

the agenda ; and, ( 3 ) ensure consistency between our regulatory actions and macroeconomic policy. keeping up the momentum over the last few weeks, major international banks have announced impressive quarterly profits. it is striking that these performances were achieved only a few months after some of those same institutions came very close to failure. this might give the impression that the financial sector has recovered its balance and that no further reforms are necessary. nothing could be further from the truth. indeed, one major risk in the period to come is the emergence of a " business as usual " mentality. once the immediate dangers have receded, the incentives to reform may become weaker and the opposition stronger. it is essential that we keep up the momentum. first, it is clear to everyone that recent profits in the financial sector, while welcome, are, for the most part, a result of public policies implemented to combat the crisis. they would have not been possible without the low interest rates which currently prevail and the public guarantees still in place. second, there are signs that parts of the financial industry have resumed risk taking practices reminiscent of those which led to the crisis. this impression may be reinforced by compensation packages which, although formally compatible with g20 agreed rules and principles, may appear out of line with the underlying performance of the industry. at the same time, bank credit to the business sector is faltering, especially for small and mediumsized companies, and most of the negative effects of the economic downturn on balance sheets are still to come. it is therefore crucial that we keep focused on our long term goals. our economies need more robust and better capitalized banks. they need greater transparency and regulation of non - bank financial entities. they need more countercyclical prudential and accounting rules. they need sound infrastructures for clearing and settling credit derivatives, in order to minimize systemic risk. they need stronger and robust risk management and better governance in all parts of the financial industry. they need increased oversight and stronger supervision of systematically important institutions. as a result of the crisis, the financial system will be permanently changed. reforms will make it possible to increase its efficiency and, at the same time, improve its stability. this will be achieved through stronger international cooperation. it is very significant that the leaders announced in pittsburgh that basel ii will soon become a truly international standard and, at the same time, it will be reformed and adapted to take on board the lessons of the crisis. striking a balance the regulatory