bank regulatory agencies and through a series of legislative changes culminating in the gramm - leach - bliley act of 1999. by the turn of the century, the depression - era cluster of restrictions on commercial banks had been replaced by a regulatory environment in which they could operate nationally, conduct a much broader range of activities, and affiliate with virtually any kind of financial firm. these changes enabled a series of acquisitions that resulted in a number of very large, highly complex financial holding companies centered on large commercial banks. at the same time, independent investment banks had grown into a group of very large, complex, and highly leveraged firms. of course, financial engineering had been rapidly changing the character of the financial services sector as a whole. among other things, securitization and associated derivative instruments were merging capital markets and traditional lending activities, thereby fueling the growth of the shadow banking system. the regulatory system had also evolved, notably through progressively more detailed capital requirements and increasing demands that banking organizations enhance their own riskmanagement systems. supervisors counted on capital and risk management to be supple tools that could ensure stability even as financial activities changed rapidly. truthfully, though, there was no wholesale transformation of financial regulation to match the dramatic changes in the structure and activities of the financial industry. in particular, the regulatory system did not come close to adequately accounting for the effects of securitization and other capital market activities on both traditional banking and systemic risk. meanwhile, as shown by the intervention of the government when bear stearns and american international group were failing, and by the repercussions from the failure of lehman brothers, the universe of financial firms that appeared too big to fail during periods of stress included more than insured depository institutions and, indeed, reached beyond the circle of firms subject to mandatory prudential regulation. the extension of funds by the treasury department from the troubled asset relief program and of guarantees by the federal deposit insurance corporation ( fdic ) from the temporary liquidity guarantee program to each of the nation ’ s largest institutions revealed the government ’ s conclusion in the fall of 2008 that a very real threat to the nation ’ s entire financial system was best addressed by shoring up the largest financial firms. regulatory reform : the consensus to date the crisis thus arose against the backdrop of a regulatory system that had not adjusted to the extensive integration of traditional lending with capital market activities, which had created new sources of systemic risk. the already significant too - big - to - fail

final steps to conclude this far - reaching financial restructuring process must be taken. in sum, spain may be said to have taken what are to all intents and purposes historic measures to leave its banking system in a position to meet solvent demand for credit when such demand picks up. recovery should come about sooner if the pertinent reforms are bis central bankers ’ speeches adopted to lift the obstacles to job creation and to allow our massive jobless figures to begin to be reduced. i shall close here, since today you are going to have the good fortune to listen to jeanclaude trichet, who will surely offer you a much fuller perspective on the response to the international and european financial crisis. it has been a pleasure and a privilege for me to cooperate with him as a member of the ecb governing council over the past five years, during times of great complexity for monetary policy and financial stability in the euro area. in this period i have seen at first hand jean - claude ’ s personal and professional qualities. he has shown he has the right blend of firmness and pragmatism required to take difficult decisions at the worst junctures of the crisis. and he also possesses the leadership and communication skills needed to convey a long - term vision of the european project and the central role that the ecb plays here. during jean - claude trichet ’ s presidency, the ecb governing council has displayed the resolve needed to deploy all the instruments available to the common monetary policy and to take timely decisions that help ensure the goal of price stability in the medium term is achieved. since the creation of the ecb, average inflation has stood just below 2 % and inflation expectations have held stable. the extraordinary scale of the financial crisis has put to the test the responsiveness of the eurosystem in general, and of jean - claude trichet in particular. since the start of the crisis a series of bold and well - directed decisions have been adopted. and these have contributed notably to restoring the monetary policy transmission mechanism, which had been seriously damaged, and to preventing an unprecedented collapse of the financial system with incalculable consequences. with the perspective that the passage of time accords, history will acknowledge jeanclaude ’ s leadership and his ability to maintain the appropriate degree of flexibility needed to respond to the crisis. these qualities were key to ensuring that the ecb and the eurosystem were up to the task, contributing decisively, through the discharge of the responsibilities legally entrusted to