box - ticking ” attitude. therefore, rather than focusing on establishing ethics offices as a “ second line of defense ”, we should focus on the ethics of the “ first line of defense ” : the bankers themselves. another option would be to impose more rules on the financial sector. of course, some of the extra regulation that has been introduced was necessary. for instance, the basel iii rules which provide that capital ratios have to be raised. yet, in my opinion, extra rules cannot solve all of our problems. for every new rule will lead to creative solutions to evade that rule. by making new rules, we won ’ t make bankers less greedy, nor will we make them more ethical. instead of overregulating every detail, we should focus on the decisions bankers make. this point – how decisions are to be made – deserves to be discussed in greater detail. a bank is governed by a board of directors and by senior management. these officers decide on the bank ’ s strategy and key targets. their decisions have far - reaching consequences for the bank ’ s operations, as the example of “ managing for value ” demonstrates : a misguided decision may have undesirable effects. this considered, i would like to focus on the way bankers should make their decisions. the classical virtue “ prudentia ” – in modern english, “ prudence ” – can help us here. prudentia is the virtue that stands for “ making careful decisions ”. it requires a capacity for reflection, careful analysis, and balanced judgment. this sounds like a goal worth striving for, but what does it mean in banking practice? in banking practice, it means that, instead of focusing on one interest in particular, bankers have to balance all of their stakeholders ’ interests. they should neither focus on their shareholders alone, nor on a specific category of their clients. bankers practicing prudence take their societal responsibility to heart, which is : to be a trustworthy intermediary. bis central bankers ’ speeches therefore, to be “ prudent ” decision - makers, bankers should : • scan which interests are at stake, • balance the different interests involved, • reflect on the consequences of their actions, • and show themselves “ moderately risk - prone ”. by making careful and balanced decisions, and reflecting on their societal responsibility, bankers will regain the trust they need to function optimally. what does dnb do as prudential supervisor to improve the “ prudence ” of

bankers? in recent years, we have focused more heavily on good corporate governance, and expanded our supervisory scope to include business models, behavior and culture. by looking closely at business models, we want to increase our understanding of how banks actually make money and become better able to discern high - risk strategies. in our supervision of behavior and culture, we aim to make banks ’ senior management more capable and more careful decision - makers. let me give you two examples. first, our “ fit and proper ” tests for aspiring board members have become more thorough. we have added requirements such as : • being sensitive to external developments ; • being able to take balanced decisions ; • and taking responsibility for the outcomes. we have done so as we want banks to have more competent decision - makers on their boards. second, our supervision of governance now also covers board effectiveness. we measure this aspect by observing the behaviour of board members during meetings. we analyze their performance, and reflect on the way they operate, asking challenging questions like : • is the chairman too dominant? • is the board really “ in control ”? • how does the board communicate? and • is there room for differing points of view? • through these new developments, we aim to foster prudent decision - making and stimulate reflection. ladies and gentlemen, i ’ m going to summarize the main points of my speech. i ’ ve approached the theme of this gathering, “ ethics and the crisis in the financial sector ”, from my perspective as executive director responsible for prudential supervision. i ’ ve made a case for how banks can restore confidence as an essential building block for a healthy economy. the remedy for the current confidence crisis neither lies in bashing bankers, nor in a charm offensive, nor in establishing ethics offices, nor even in imposing more rules. bankers need to become prudent decision - makers again. this will restore the balance required for them to function optimally. bis central bankers ’ speeches this is how i look at the issue. i ’ m aware that others may hold different views and will be happy to answer questions during the panel session. finally, i wish all students and faculty members gathered here good luck in their new academic year and hope to see some of you back at de nederlandsche bank one day, when your career takes you where maybe you hadn ’ t expected to go. ; ) thank you. bis central bankers ’ speeches