. a clear example of this is a restriction on the accumulation of deposits in foreign bank branches. the long - term need for such more stringent rules will be determined to a degree by iceland ’ s future currency and exchange rate regime. experience shows that maturity mismatches between banks ’ assets and liabilities that are not backed up by a lender of last resort represent a substantial risk. the global financial crisis has revealed a variety of weaknesses in the regulatory framework and the supervision of the financial sector. on the whole, the quantity and quality of financial institutions ’ capital was insufficient to provide the necessary shock absorption. in particular, there should have been more unpledged common equity. the risk assessment of assets and liabilities was distorted because it was based on historical data that did not assign sufficient weight to bad states of the world. liquidity risk was vastly underestimated, and the procyclical tendencies within the financial system were not sufficiently offset by the regulatory and supervisory framework. on the contrary, it can be argued that the interplay of regulatory provisions and financial reporting rules based on mark - to - market exacerbated these tendencies. the remuneration schemes in financial undertakings and the decisions made by credit rating agencies added fuel to the fire. financial supervisors tended to focus on risk attached to individual financial institutions more than on system - wide risk. there was also a tendency to practise somewhat lax supervision in order to stimulate the development of financial centres. as a result of all of the above factors, the financial system became far too leveraged. at this writing, a variety of efforts are being made internationally towards correcting these flaws, as is described more fully in this report. the central bank of iceland is following these developments closely, not least through its membership in the bank for international settlements in basel, which is the venue for a number of the committees and institutions that assess risk in the global financial system and formulate the regulatory framework and standards that govern it. the experience of this financial crisis – both in iceland and abroad – calls for a reassessment of the most effective architecture for financial supervision, with particular emphasis on the nature of the relationship with the central bank. for some time, the trend was towards separating central banks from financial supervision, particularly in countries with developed financial systems. but as is discussed in this financial stability report, banking supervision has remained within the central banks of a majority of european countries, and the pendulum might be swinging in that direction once again

in time, would you support greece in a different way? 2 / 3 bis central bankers'speeches if we want to take a long, hard look at ourselves, we should go back further than the greek crisis, to the beginnings of the euro area. between 1999 and 2010, we allowed budgetary situations and wage costs to diverge between countries, which led to the crisis. that was the first lesson. faced with the crisis, we had to support greece – it was a question of solidarity. we also had to involve the imf which, unlike europe, had experience in supporting countries through crises. and it was essential to reduce public expenditure, because greece was clearly living beyond its means. the mistake, from my point of view, was in reducing it too drastically, which made the recession worse. we should have been more realistic about the sustainability of greece ’ s debt and insisted on competitiveness and combatting rent - seeking from the start, instead of leaving taxpayers and workers to foot the bill for the adjustment. i might add that europe lacks a budgetary instrument to support social adjustment in crisis countries, which could have prevented dramatic situations – schools without heating and hospitals without medicine – such as we saw in greece. on 14 june the ecb announced, as expected, the end of its policy of asset purchases, referred to as quantitative easing or qe. in contrast, the first rise in interest rates is going to come later than expected. does that reflect your concerns about the robustness of growth? growth is still robust throughout the euro area, despite the moderation in the first quarter, and even in the second quarter in certain countries. but there is increasing uncertainty arising from tensions in world trade as well as the risk of volatility in the financial markets and in certain emerging economies, and we have to take all that into account. hence the unanimous decision by the governing council : on the one hand, due to the robust growth we are confident that inflation will return to close to 2 % and we anticipate our net asset purchase programme to end in december ; on the other hand, we recognise the need to maintain a very accommodative monetary policy. we expect our policy rates to remain unchanged until at least through the summer of 2019. and we will continue to reinvest the principal payments from maturing securities in our portfolio, or around €15 billion per month, in 2019. that ’ s what surprised most observers, and the markets … yes, for the