. in this respect, a further development of risk - pricing would help gain deeper insight into risk differences between pension systems. this brings me to a second key issue in the design of corporate pension plans : how to decide on investment policy and who should bear the residual risks? investment policy and responsibility let me put this more bluntly : is a shift to defined contribution schemes the optimal way to reduce pension risks for employers? i doubt it. in 401 ( k ) plans, the individual decides what part of his wage he wishes to transfer to his 401 ( k ) account. moreover, notwithstanding recent initiatives that offer participants responsible investment - packages as a default, the majority of the plans still give contributors a substantial say in the investment policy. this all means that many 401 ( k ) plans rely heavily upon individual responsibility as well as financial literacy. however, not everyone is able to understand the complex world of pension finance, as the average employee is not as well educated in finance as you all probably are. let me clarify this by asking two basic questions, which were also put to a large group of american workers : • suppose you have €100 in a savings account and the interest rate is 2 percent per year. after five years, how much do you think that you would have in the account if you left the money to grow : more than, less than, or exactly €102? • now imagine that the interest rate on your savings account is 1 percent per year and inflation 2 percent per year. would you then be able to buy more than, exactly the same as, or less than today with the money in the account? it may come as a surprise to you, but research has shown that over 50 percent of us pension plan participants could not answer these two simple questions correctly. and add to this, as pension - expert david blake noted more than once, that 50 percent of the individuals does not even know what 50 percent is! moreover, the man in the street is not an expert on risk diversification : in for example the well - known enron case, employees had invested 60 percent of their 401 ( k ) assets in enron stock. on average about one - fifth of all 401 ( k ) assets are invested in own company stock. although this is understandable since an employee is always relatively confident of his own firm ’ s prospect, this again leads to the undesirable situation where human and financial capital are tied to the wellbeing of one and the same firm

requirements, minimum and regulatory buffers, factoring in the cumulative impact of the july and december 2009 reform measures and any adjustments to them. any analysis of appropriate minimum levels must recognise that, to be credible, they need to cover historically severe losses. buffers need to be sufficiently high to withstand sector wide stress while remaining above a credible minimum. the calibration needs to be set at a level that is appropriate to promoting long term stability. where there are tradeoffs, these should go in the direction of giving banks the time to reach the new standards instead of watering down the standards themselves. failure to put in place high quality standards for the long term simply sets the system up for another banking crisis down the road. third, we are assessing the benefits and costs of the basel committee standards and i think it fitting that i close on this note. the past three years should serve as a strong reminder to us all of the benefits of mitigating banking crises. the costs of a banking crisis include the direct losses borne by security holders, the massive scale and diversity of public sector intervention measures which have strained public finances and will need to be scaled back over time, and the large fall in national and global economic output and employment. unfortunately, such episodes are not confined to recent history and occur much more frequently and have much greater economic impact than any of us feel comfortable with. moreover, the history of crises also shows that some of these costs are persistent. raising capital and liquidity standards will reduce the probability and impact of crises, and bring with it large benefits. these benefits include : avoiding both the temporary and additional permanent reductions in output and employment that occur during banking crises ; greater stability of economic output and associated increases in welfare that result from lower output volatility during non - crisis periods ; a more stable banking system that is able to withstand shocks from outside the banking sector rather than amplifying the effects of such shocks on the real economy ; lower risk premia ; and more efficient allocation of resources and the avoidance of excessive credit growth that is often allocated to certain sectors leading up to a crisis. as with the benefits, the costs of raising capital and liquidity requirements can have both temporary and permanent elements. the temporary costs we believe can be managed through appropriate transition periods – in some cases there has already been very significant adjustment forced by the market and supervisors. the basel committee and the fsb are in the process of assessing these temporary costs and the results of this work will help inform the appropriate