for policy - makers will be to design appropriate responses to enhance the stability of the financial system – including improving the detection and understanding of risks and vulnerabilities and translating these into concrete risk warnings and policy recommendations – without imposing restrictions that would unnecessarily hamper financial innovation and reduce the efficiency of the system. many improvements, including the new basel ii capital accord, were already under way when the crisis erupted, and they address several of the weaknesses that have been identified. however, the ferocity of the financial turmoil and its fall - out which spread well beyond the financial sector call for more far - reaching reforms in the area of macro - prudential supervision. in this context, a key initiative is the proposal for the establishment of a european systemic risk board ( esrb ), which will be supported analytically and logistically by the ecb and for which lucas has already initiated a lot of groundwork. the esrb will be an independent body responsible for conducting macro - prudential oversight of the eu ’ s financial system as a whole. once the legislative process is completed, the creation of this new european policy function will fill a significant gap in the ability to detect, assess and ultimately contain the build - up of risks. in particular, the esrb will be tasked to collect information relevant for systemic risk from across the eu. this should help overcome the significant information gaps which have hindered a comprehensive risk surveillance thus far, for instance with regard to the interlinkages among the major crossborder financial institutions. the esrb should be seen as the component of a global framework of macro - prudential oversight. this should support its effectiveness by also allowing it to contribute to the assessment and containment of global risks, which in turn may also contribute to the mitigation of risks in europe. the financial stability board, the imf, as well as national authorities, are all actively engaged in the development of a comprehensive framework of macro - prudential supervision, which also takes into account the risks arising from systemically important financial institutions. the crisis demonstrated that only internationally coordinated initiatives are truly effective in addressing risks and vulnerabilities in the closely integrated financial system. lessons for monetary policy with regard to monetary policy, in many respects recent events have served to confirm the approach adopted by the ecb since the outset of monetary union in 1999. most fundamentally, the primacy of price stability as the objective of monetary policy has been confirmed. indeed, at times of

of the commitment towards supporting regional monetary and financial surveillance, and in advancing efforts to institutionalize cross - border crisis management and resolution arrangements. these developments will contribute towards reducing any procyclical impact of basel ii and facilitating over time, refinements to the risk parameters that are more appropriate to local and regional experiences. the continuation of such efforts at the national and regional levels will reduce the prospects for potential disruptions in the regional financial systems. one of the most important consequences of basel ii lies in the effect that it will have in sharpening the focus on corporate governance in banking institutions. while there has been considerable attention focused on the quantitative implications and operational aspects of the basel ii framework, there has been less attention given to the corporate governance dimensions associated with its implementation. the expectations on the board and senior management oversight are significantly higher under basel ii. the board of directors is expected to ensure that a sufficiently strong risk control framework is in place before banks can adopt the more advanced approach. boards and senior management must have a sound understanding of the risk profile of the respective banking institution and ensure that it holds sufficient capital that is commensurate with that profile. this is reinforced by the greater attention being accorded by supervisors to the risk management control functions within the banking institutions and how they are effectively governed. improved market disclosures under the third pillar of the framework further subjects the banking institutions governance practices to closer market scrutiny. these developments have challenged governance practices that may have been tolerated in the past, but which would be grossly inadequate to provide the oversight that is demanded in today's far more complex business environment. such practices have included vague reporting of risks to the board, boards that are disengaged, and boards that have no or little expertise in risk and financial matters. boards and supervisors need to confront these issues with firm resolve. this will entail the more rigorous scrutiny of board members and senior management, both prior to their appointments and on an ongoing basis. boards need to also assert themselves more actively in advocating and driving risk reforms, and demanding the appropriate level and amount of information from management that would enable the oversight responsibility to be discharged effectively. in many respects, basel ii remains a work in progress. as we continue to ponder its broad and complex dimensions, platforms such as this for open and active dialogue between public and private interest groups are important to provide further insights on the many issues that will provide the direction forward for the wider and effective global implementation of basel ii. on that note