failure of governments and regulators. in my view, free markets work properly given a set of good rules. it is natural for human beings to make free choices. it is the regulators ` duty to design rules that always preserve this freedom while preventing, for as long as possible, the accumulation of problems from asymmetric information, perverse incentive and conflict of interests. the two approaches of regulation – the one up to the ` 60s and the one before the outbreak of the current crisis – are a proper basis for understanding what good rules might mean. iii. the financial system in the aftermath of the crisis the financial industry is supposed to be the lubricant of the economic engine and ensure its smooth and efficient functioning. to grasp the sheer scale of its task, just imagine the billions of savers and investors whose interests have to be matched by the financial system, each of them having a particular behaviour, often driven by emotions. in doing so, financial institutions use specialized resources to assess and manage risks, including complicated mathematical models. just think of the many nobel prizes that were awarded for achievements in this field. the complexity of financial intermediation explains some of the seemingly peculiar features of the financial system as, for instance, the fact that the volume of transactions on the forex market is many times larger than what would be required by the actual exchange of merchandise. bis central bankers ’ speeches the major positive contribution of the financial system is its ability to deal with asymmetric information problems. adverse selection and moral hazard are issues emerging from asymmetric information. they are a cost to society, as they hamper lending. financial system expansion has been the natural solution of the society in order to overcome asymmetric information problems. financial institutions put their capital at risk and derive income from the spread between lending and deposit rates. in doing so, they use specialized resources to assess credit risk and discipline the borrower. the fact that it has failed, triggering heavy costs to the society, leads to deep public anger and resentment. “ while anger and resentment may be useful spurs to action ” – to quote andrew crockett ( 2011 ) yet again – “ they are much less helpful in shaping a balanced response to the crisis that both safeguards society against financial fragility and preserves the contribution that the financial sector makes to high quality sustainable growth ”. indeed, the crisis response so far has perhaps focused too much on preventing future financial crises and neglected the fact that robust economic growth is simply not possible without

that have contributed to the development of the romanian financial and banking system : the financial and enterprise sector adjustment loan ( fesal ) – a program that focused on reforming the financial sector, and the private sector adjustment loan ( psal ) – which has offered support towards the privatization of the romanian banks and to the development of the monetary and capital market, in line, as well, with our objectives of european integration. the international financial corporation ( ifc ) – an institution member of the world bank group that romania joined in 1991 – has supported the romanian banking sector by investing in various romanian banks, especially during the privatization process. i welcome the current involvement of the world bank in projects that aim to improve the health and education sectors, to reduce poverty, as well as projects focused on climate issues. lastly, i thank you for the invitation to take part in this event. i am honored to be here, celebrating 30 years of renewed partnership and cooperation between romania and the world bank. to the team in bucharest office of the world bank – which i considered, during these 30 years, as being competent and dedicated, aligned with our endeavors – i extend my warmest congratulations. happy anniversary! at the same time, i would like to take the opportunity to express my appreciation for the management and staff of the world bank in washington for their work in pursuing the bank's mission to foster sustainable development and promote social prosperity around the world. thank you for your attention! 2 / 2 bis - central bankers'speeches