united states, it was bad banking practices and the public outcry after the stock market crash of 1929 that brought about the glass - steagall act of 1933. interestingly, the act followed an enquiry into whether commercial banks had sold unsound securities to their customers, thus converting potential bad loans into securities issues. the act therefore prohibited commercial banks from underwriting, holding or dealing in corporate securities, either directly or through securities affiliates. 4 in my view, the concerns that prompted the act were very similar to those currently being voiced – particularly in relation to concerns about banks ’ business models and the sale of unsound securities to unsuspecting investors. the act had a global impact on competitive conditions. for instance, the large presence of major us investment banks in europe can be traced back to the implementation of this act, which separated investment banks from commercial banks. the act also had an impact on the supervision of banks, mostly in the united states, but also in other regions in the world, x. freixas and j. c. rochet ( 1997 ), the microeconomics of banking, mit press. x. freixas and j. c. rochet ( 1997 ), op. cit. r. kroszner and r. rajan ( 1994 ), " is the glass - steagall act justified? a study of the u. s. experience with universal banking before 1933 ", american economic review. including europe. owing to the funding structure of commercial banks and the stronger links between them – and hence their importance for financial stability – commercial banks were regulated accordingly. in contrast, investment banks were expected to be in less need of close monitoring and regulation, as they were seen to be less important from a financial stability perspective. the current crisis has vividly illustrated how the actions of not only commercial banks and investment banks, but also other financial players, can have a major impact on all parts of the financial system and the economy at large. i should now like to focus on two major factors that have changed the way banks do business. first, i will discuss the changes in banks ’ business models that relate to the sources of their revenue. and, second, i will focus on the changes in the funding of banks and talk about the unintended consequences of the expansion of their securitisation activities. diversification in the sources of revenue with regard to the change in the sources of banks ’ revenue

. but it ’ s not the only element. the frame that a bank builds around the risks it takes – the risk appetite framework – is equally important. the risk appetite framework comprises the principles, processes, internal controls and systems, as well as the responsibilities and the limits of material risks that the bank wants to take on or has already taken on. and, of course, the supervisory board plays an important role in building a sensible risk appetite framework. over the past few years, banks have made good progress in designing their risk appetite frameworks. still, there is scope for improvement. even though risk appetite frameworks now cover many more types of risk, one category is often overlooked : non - financial. reputational risks, it risks or legal risks are often either not covered at all or just in part. i know that it ’ s difficult to measure these risks, but neglecting them is no solution either. once the risk appetite has been defined, risk limits play a major role. they ensure that the risks taken are in line with the risks defined ; they make the risk appetite operational. it is important that banks break down these limits by business lines, entities or countries. not all banks do that. and when they do, the local limits are not always consistent with those at the consolidated level. this is something banks need to work on. another problem is that banks often set the limits so high that they are no of help in steering risk taking. it is obvious that this puts the entire risk appetite framework in question. building a sensible risk - appetite framework is not that easy. and it ’ s not enough to just build one ; 2 / 3 bis central bankers'speeches it also has to be applied. that ’ s the crucial point. banks must turn the risk appetite framework into a key element of their risk culture and their decision - making. what does that mean? it means that all parts of risk management must be precisely aligned to each other – including the risk appetite frameworks. and they must be aligned to the rest of the organisation as well. what good is a well - defined risk appetite if the remuneration schemes set different incentives? what good is a well - defined risk appetite if it ’ s not finely - tuned to the business model or the business strategy? in our view, too many banks still see their risk appetite framework as a separate tool. it is not. it must become an integral part of decision - making. most banks do not use the defined risk