regards regulation, there is presently major political pressure “ to do something ” in order to reduce the probability of similar disruptions in the future. however, rather than more regulation we should aim at better regulation. self - regulation, anyway, has proven insufficient. a lot of thought has been given to necessary consequences. considerable efforts have already been made. last weekend ’ s washington summit on financial markets and the world economy has certainly taken another important step forward in this respect. the financial stability forum – being key in this regard – had submitted a comprehensive list of recommendations for strengthening the financial system. much progress has already been made in this respect. instead of analysing the details, i would rather give some general remarks as regards the future shape of regulation. the first is, we need more transparency concerning unregulated business areas and markets, including hedge funds, otc traded derivatives or off - balance - sheet vehicles. gaps on the world map of regulation should be filled. on the other hand, we should not throw out the baby with the bathwater! we should especially refrain from blanket judgements on discredited financial instruments. to mention just one example, securitisation can be essentially a useful financial technique. another important issue regarding the future shape of regulation that i would like to mention is mitigating the procyclicality of financial regulation. procyclicality means the reinforcement of the natural cyclicality of the financial system, thereby – in the least favourable case – encouraging boom and bust cycles. capital requirement rules under basel ii, for example, are supposed to be procyclical owing to accelerating capital requirements in case of rising borrower ’ s default risk. to the extent that banks change their lending behaviour in reaction to this, economic cycles can be amplified. another case in point is management remuneration, in particular, schemes that reward quick success with annual bonuses without penalising long - term adverse consequences of decisions that had been taken. furthermore, accounting rules have come under scrutiny as regards procyclicality. while fair value accounting certainly has its merits, it amplifies the cyclicality of leverage. recent amendments in international accounting rules are useful in order to protect banks ’ current results from further crisis - driven exaggerations. one - sided easing of accounting rules, however, entails the risk of sowing the seeds of a growing risk appetite in the future. as an economist, i suppose, it has become obvious that accounting is too important

to leave it to the accountants. future regulation of financial markets will significantly curtail too risky business behaviour. taking recent rises of financial market participants ’ risk aversion into account, a more stable financial system can thus be expected. banking in the future might be more boring and less sophisticated, however, it will be more sustainable. what we should refrain from is a ) creating new international institutions. instead we should promote essential improvements of cooperation among existing ones, and – if warranted – assign new tasks to them. b ) invest too much hope into crisis prevention by means of an institutionalised early warning system as its utility seems to be overestimated. as you know, there were plenty of warnings concerning unsustainably low levels of risk premiums, sent by central banks and other organisations, but these fell on deaf ears, c ) measures of protectionism. fortunately, the heads of state of the g 20 have declared that they will resist the temptation to protect their national economies at the expense of other nations. however, i hope that these are not just empty promises. central banks before i conclude, i would like to add some final remarks on central banks and their future role as to financial stability. central banks are affected in many ways by the current crisis. three issues are of major importance in this respect. firstly, in many countries, central banks are responsible for banking supervision and therefore concerned with the liquidity and solvency problems of individual financial institutions. even during a systemic crisis, the close connection between central banks and banking supervision has proven to be advantageous owing to synergy effects of micro and macro - prudential analysis. while the german model of a dual banking supervision system has proven to be effective, international cooperation among financial supervisors needs further improvement. colleges of supervisors for internationally active categories of banks are a good first step in this regard. secondly, being a “ liquidity provider of last resort ”, central banks are concerned with tensions on the money markets. since the beginning of the subprime crisis, central banks have been providing commercial banks with comprehensive liquidity measures. after the lehman collapse and the subsequent drying - up of wholesale funding markets, these operations have been further intensified. the eurosystem has repeatedly declared its intention to continue its generous supply of liquidity as long as necessary. however, underlying solvency problems – while not always clearly separable from liquidity problems – cannot be solved by central banks or banking supervisors it is a core government task, and the german