new regulatory instruments to keep pace with the impact of new technologies – including high frequency trading, algorithmic trading and the new universal trading platforms, which are gaining ground very rapidly. last week, the esrb selected the members of its advisory scientific committee to provide advice on analytical issues. we have also established the advisory technical committee, which assembles experts from all central banks. the institutional set - up is completed and the esrb will now focus on its substantive tasks, of which we will have a substantive review in june this year. combining a focus on short - term risks with the medium - and longer - term perspective will be the major challenge. conclusion let me conclude. i believe we are now about halfway through the comprehensive reforms that the crisis has called for. we have achieved a blueprint of more stringent bank regulations that includes more loss - absorbing capital, better risk coverage and limitations for undue leverage. countercyclical capital buffers are meant to lower pro - cyclicality. the oversight of financial institutions as well as markets and market infrastructure are being strengthened, and the organisational structure of financial supervision is being overhauled. but much remains to be done. the most important aspect is the implementation of these reforms. moreover, the issue of systemically important financial institutions requires further reflection, and oversight of the proper functioning of financial markets in a way that avoids undue volatility, excessive influence of dominant players and oligopolistic market structures, while reinforcing transparency, needs to be addressed resolutely. such understanding would be enhanced by greater focus in academic research on analysis of the intricate interactions in complex financial systems. the appropriate benchmark for the financial system is whether it is providing appropriate financing to the real economy in a stable and sustainable way. thereby, and thereby only, will it make a valuable contribution to our economy. thank you for your attention. bis central bankers ’ speeches

even increase slightly around the turn of the year. despite the recent decline in oil prices, changes in administered prices and some adverse base effects on the most volatile components could have some upward impact and delay the return to inflation rates below 2 %. however, these developments should be temporary. looking further ahead to the prospects for inflation, let me start by reviewing the liquidity situation, as evidenced in monetary developments, which is an important part of our analysis of risks to price stability over the medium term. at present, there is more liquidity in the euro area than would be needed to finance sustainable, non - inflationary growth. this is due in part to the low level of interest rates in the euro area, which is fuelling the demand for liquid assets. however, the continued strength of monetary growth is also due, to a large extent, to portfolio shifts into m3. these shifts occur for precautionary reasons in an environment of high financial market uncertainty. in view of this, and given the current environment of subdued economic activity, we do not see a high risk of this translating into inflationary pressure in the near future. the continuing strengthening of the euro since early this year together with the weak pace of economic growth in the euro area are in fact dampening inflationary pressure. however, for annual inflation rates to fall below 2 % in the course of 2003 and for them to remain in line with our definition of price stability thereafter, it is crucial that oil prices do not significantly increase again and that the upward movement in labour cost indicators in the euro area, which has been taking place over recent years, does not continue. these indicators have shown a notable inertia despite the subdued economic expansion. at the last meeting of the governing council of the ecb on 7 november, in view of the high uncertainty on future economic growth and its implications for medium - term inflationary developments, we discussed extensively the arguments for and against a cut in the key ecb interest rates. the overall view was to keep interest rates unchanged. in the same statement, however, we also said that we will monitor closely the downside risks to economic growth in the euro area, in view of their potential dampening effect on inflationary pressures. let me now briefly turn to fiscal policies, an issue that is currently receiving particular attention in europe. let me remind you that that the principle of budgetary discipline enshrined in the treaty and the stability and growth pact establishes that member states should maintain over the