improve accounting standards. agreement on this point is not as broad as on the previous ones. the members of the g20 have sometimes divergent views about the role of accounting rules. in particular, one of the controversial points relates to mark - to - market and the scope of application of fair value accounting. nonetheless, i observe that the g20, by asking that the accounting standard setters take greater account of financial stability constraints, implicitly acknowledges that the impact of accounting choices on the latter are not neutral. in any event, the countries agreed on three objectives : reducing the complexity of accounting standards, increasing the harmonisation of standards internationally and introducing a more forward - looking system of provisioning. the discussions at the g20 summit find a strong echo in europe. in fact, it is no exaggeration to say that the europeans are a driving force in the international projects i have just described. in regional terms, the report by the high level group chaired by jacques de larosiere is a cornerstone for the new financial regulation and supervision that will emerge in europe after the crisis. these recommendations appear highly relevant to me. they reconcile efficiency and pragmatism. whether it concerns developing a european system of financial supervision or setting up a systemic risk council under the auspices of the ecb and the escb, these ideas are truly conducive to greatly strengthening the surveillance of risks both at individual institution level and for the european financial system as a whole. the reforms that i have just described should make it possible for the incentives of financial system players to be compatible with the stability of this system. the crisis has highlighted two types if not of incompatibility, at least of divergence that need to be corrected. first, within the financial industry itself. financial innovation and developments in the business models of financial intermediaries have weakened credit discipline in favour of a strict return - oriented discipline. regulators are working on correcting the regulatory sources of these incentives, which are dangerous for financial stability. i am thinking notably of the work aimed at reducing regulatory arbitrage and at countering the short - termism encouraged by certain prudential and accounting provisions. second, we need to reconverge the incentives of private - and public - sector players. their divergence is a natural phenomenon in periods of economic and financial boom. in these periods, regulators and supervisors find it harder to limit risk - taking when the risks to financial stability are unclear and competition is fierce. maximising profit

the g20 has laid down clear principles to guide the overhaul of financial regulation. they mainly cover three areas : the strengthening of prudential standards, the redefinition of the scope of regulation and the revision of accounting standards. before bringing up these three dimensions, i would like to point out that the g20 action plan imposes a requirement for all stakeholders concerned with financial stability : how to better assess the risks facing the financial system as a whole? on this point, you will agree with me that systemic risk is the risk that we need to take better account of. we have not been able to identify it, control it, or capture it in prudential terms. in many respects, systemic risk is the result of liquidity risk, leverage, compounded by financial innovation and high transformation risks. these factors are not easy to measure at the level of individual banks. they are even less so at the level of the financial system as a whole. this is nevertheless the challenge we have to face today. let me come back to the g20 action plan. this plan first recognises the need to strengthen prudential regulation in three areas. capital requirements need to be strengthened and made more counter - cyclical by introducing a system of capital buffers. the quality of capital should be enhanced and its definition harmonised. we also may need to add to the range of instruments currently available a simple mechanism to measure leverage in order to complement the information provided by the solvency ratio. another lesson that the g20 has learned from the crisis is that the current scope of regulation and supervision is inappropriate as it is too narrow. the current framework is based on the implicit idea that banks alone – because they collect deposits – are the source of risks for the system as a whole. this used to be the case. yet, it is no longer true at all. it is now evident that all systemically important institutions and markets need to be regulated. in concrete terms, the g20 is widening the scope of regulation to include rating agencies, hedge funds and derivatives markets. the general principle is to abandon a silo approach to regulation, which was structured around institutions'legal character ( e. g. banks, insurance companies, etc. ), and to move over to a type of regulation based on the roles performed by different players in the stability of the system ( liquidity provision, deposit - taking, market making, etc ). lastly, the g20 has set out a road map to