necessary for the normal operation of financial markets, and therefore also necessary for the indebted economies to return to a phase of durable growth. just as important is to encourage the banking sector to adjust and shed any excess capacity that exists in the financial services industry. otherwise, the european governments in particular may end up supporting a number of ineffective and unviable banks. a simultaneous improvement in the financial condition of banks, households, and governments will be a difficult and slow process as long as high risk aversion prevails in the capital markets and until there is growth and a recovery of investment activity. the improvement is especially challenging in countries which have lost their competitiveness and have run current account deficits, financed by borrowing. bis central bankers ’ speeches financial regulation ( slide 8 ) one part of the new landscape is the new and coming regulatory environment of finance and banking. this will have a profound impact on how the financial sector will operate in the future. the aims of the regulators are logical as consequences of the lessons learned during the last years. there are several regulatory reforms that are currently in progress. most importantly, banks are required to strengthen their capital ratios. this is motivated by two reasons. larger capital buffers will make banks more resilient towards losses. at the same time, the owners of bank equity will have a larger stake in a bank ’ s business and risk - taking. that is expected to encourage better monitoring of the business on the part of the owners. the complaint that in banking, “ profits are private but losses socialized ”, that has motivated political decision - makers to require the new regime to be implemented quickly. new so - called macro - prudential tools are also being developed. the word macro - prudential refers to the aim of these new regulations, which is to steer the market as a whole instead of focusing on the riskiness of individual banks. the macro - prudential regulation should, in particular, reduce the danger of excess indebtedness in the economy and the financing of asset market bubbles in the future. there are also more far - reaching proposals on the table : in the us and the uk, proposals are under consideration to separate investment banking from the narrowly defined “ normal ” part of the banking business. in europe, the need of such structural restrictions is now being considered in a european commission working group under the chairmanship of governor liikanen of the bank of finland. at the same time, more efficient procedures of crisis

who wrote : " theorists explain what historians know : war is normal ". richard sets out four broad motives for war : resources, belief, power and security. i mention this because as well as powerful and more detailed surveillance, for multilateralism to have impact it has to speak to the big issues. a criticism of the early history of the fund and bank is that they were often invisible. to be fair, bretton woods was not designed with the cold war in mind, so the world moved on very quickly. but, since resources, belief, power and security cannot be separated from economics, with the rising threat of destructive nationalism we have to go back and determine what role the multilateral institutions should play to re - establish – and explain the value of – economic co - operation. another dimension to the issue of balancing national interests and international cooperation is the question of how many poles are there in the system? bretton woods is often portrayed as the transfer of authority from one single pole ( britain ) to another ( the us ), the creation of a new era. it also gets portrayed likewise as the wrestle between keynes and harry white. at the time, the importance of enabling this transfer of poles was cast in terms of avoiding going forwards the dangerous nationalism of the 1930s. very quickly, the issue became the different one of whether collective international co - operation could embrace capitalist and communist systems, it couldn't. over time, the issue moved on to the tension between advanced countries and those in the developing and emerging ones, and it is this tension that has been a persistent feature of the fund and the bank in their more mature and influential era since the 1970s. even if issues around voting shares remain to be resolved, the fund has been able to evolve its toolkit in order to lend more money to vulnerable countries. today, the issue of whether / how much the world is multipolar is complicated by the question of whether it is possible to frame effective international co - operation in a world where the two largest economies, the us and china, have such different philosophical underpinnings. this strikes me as more fundamental than the traditional bretton woods issue of how to design a system which creates appropriate discipline for creditor and debtor nations, though i don't want to deny the importance of that issue. the conclusion i draw here in terms of making multilateralism work is that we have to do all we can to make it work, and that this should be an acknowledged objective