be a big ask. in the crisis itself, the too - big - to - fail issue presented simply as an imperative for a number of governments to prevent failures. but as the crisis recedes, and the global financial system is gradually nursed back to health, it is this issue that is going to leave the biggest lingering challenge. the financial stability board will be directing particular attention to it over the coming year. it is not likely to be amenable to simple solutions, or easy ones. in the mean time, enormous moral hazard, perhaps greater than ever before, exists in the global financial system as a result of the actions – albeit essential ones in the circumstances – of 2008. conclusion a year ago, i wished this audience a much less interesting 2009. that wish was partly fulfilled in that 2009 was less “ interesting ” than 2008, though still not quite boring enough in my view. as 2009 draws to a close, things in the global financial system look much less worrying than they did a year ago. with the sense of immediate crisis much reduced, regulators can devote more focus to the job of designing and implementing changes to regulatory frameworks – work that is better done outside a period of crisis anyway. realistically, the task is to reconfigure regulatory frameworks to lower the probability, and the cost, of future crises while assisting recovery from the recent one. that is every bit as difficult a challenge as getting through the immediate crisis itself. it will require very careful judgment to strike the right balance between costs and benefits of revised regulatory structures and practices, and due regard to the possibility of unintended consequences. it will also take a great deal of determination on the part of regulators to enforce arrangements adequately in future booms. and there is little doubt such booms will occur because, ultimately, the cycle of greed and fear itself cannot be regulated away. to assume that unrealistic optimism will not again, at some point, overwhelm the more sober instincts of investors, bankers, commentators and others would be a triumph of hope over experience. but it can ’ t be beyond us to achieve some worthwhile reforms in this area and 2010 is a year in which we can hope to make some progress. i wish all of you a merry christmas and a prosperous and stable new year. 163 / 2009

but in some cases their risk - taking behaviour and subsequent travails had systemically significant impacts on the core financial system. fourth, cross - border arrangements : globally active banks and other entities operated apparently seamlessly across national borders and legal jurisdictions. but the structures to allow that were actually quite complex, and legal, supervisory and crisis - management arrangements remained nationally based. so when it came time to manage the process of deleveraging and winding up of some institutions, the degree of complexity was increased by the cross - border nature of the issues. finally, pro - cyclicality : the episode demonstrated – again – that the financial system imparts its own dynamic that reinforces the natural cyclical tendency in an economy. in good times, lenders and investors tend to be confident and act with less caution. standards decline and banks come under pressure either to use “ surplus ” capital or return it to shareholders. backward - looking risk metrics present risk as low just when it is reaching dangerous levels and very high when everyone has already become much more risk averse. this all serves to fuel the boom and bust. many commentators have argued that accounting standards contributed to pro - cyclicality. fair - value accounting and buoyant markets make for strong valuations that can boost recorded profit, but problems emerge when banks have to mark - to - market securities whose markets have effectively ceased to function. the incurred - loss basis for provisions – where an event has to occur before a provision can be made – promotes transparency in one sense. but it arguably inhibits the build - up of buffers in the good times to cushion against future losses, and prompts more provisioning during the turmoil, further harming profitability and confidence. other incentives have also been seen as adding to cyclical behaviour. remuneration packages for some financial institutions ’ executives and employees appear to have been structured in a way that may have encouraged traders and managers to take excessive risks in activities that appeared profitable in the short term but led to large losses later on. people have also pointed to the role of earlier regulatory changes, credit ratings, the complexity of instruments and weaknesses in market infrastructure, not to mention the long period of low global interest rates, the “ global imbalances ” and so on as all playing a role. i don ’ t want to underplay those factors, but the five above are the big themes on which i want to focus today. what is being done? much has already been done, or is underway,