jean - claude trichet : 18th frankfurt european banking congress statement by mr jean - claude trichet, president of the ecb, at the 18th frankfurt european banking congress, frankfurt am main, 21 november 2008. * * * ladies and gentlemen, this year ’ s european banking congress takes place at a very challenging point in time. today ’ s event is therefore a particularly important one. it is a pleasure to be here amid so many distinguished participants and to be joined on this panel by my central bank colleagues from brazil and the united arab emirates. we are at a critical juncture as far as the set - up and functioning of the international financial system is concerned. the current financial crisis was triggered by a widespread and substantial undervaluation of risk. when the crisis erupted in august 2007, it was at first a systemic threat to the liquidity of the financial system, which mainly affected advanced economies. in mid - september of this year the crisis deteriorated very significantly and turned into a systemic threat to the solvency of important parts of the global financial system. it is no longer limited to advanced economies and is instead also affecting emerging economies. in addition, it has spilled over from the financial sphere to the real economy. global challenges call for global responses. policy - makers across the globe have responded and are taking appropriate action to contain and alleviate the crisis. central banks are playing a pivotal role in this regard, providing the necessary liquidity – sometimes in ways that were scarcely imaginable up until a few months ago – in order to ensure that financial markets and institutions can continue to function. as far as the ecb is concerned, i would like to point out once again that we have acted decisively from the very beginning of the turmoil in august of last year. at that time, when the threat to the liquidity of the financial system first emerged, we provided the system with no less than eur 95 billion of liquidity within a few hours. later that year, the ecb also began to supply liquidity to european counterparties in us dollars through swap arrangements which we established with the federal reserve. since october of this year, we have been granting full allotments in our monetary operations. these are only some of the key measures taken by the ecb in order to support financial markets, and you see from the design of these measures that some of them are literally without precedent. * * * at the same time as we are dealing with the current crisis, we also need to look

fall in the categories of globally systemically important institutions ( g - siis ) or other systemically important institutions ( o - siis ) and are thereby subject to the respective capital buffers. four countries ( soon to be five ) have activated the systemic risk buffer, while two have activated the countercyclical capital buffer with a further three announcing positive countercyclical capital buffer rates for the near future. 3 looking ahead, macroprudential policy should play an important role in ensuring the resilience of the banking sector to adverse shocks. at this stage of the financial cycle, is would still be desirable for a number of euro area countries to build - up macroprudential buffers, in my view. the crisis taught us that we must be vigilant in safeguarding the resilience of our financial system at times when vulnerabilities are building up. the slower growth momentum we are seeing increases the risk of tail events, in other words, shocks that are unlikely to occur, but would have a significant impact on the financial system and the economy if they did. bank capital plays a crucial role in absorbing these tail risks : it provides solvency insurance and makes it more likely that banks will be able to continue to provide credit during a downturn. from a macroprudential perspective, then, the continued build - up of buffers could therefore be justified, especially in those countries where the long upturn may have led to an underestimation of credit risk or where private indebtedness is particularly high or rising. ensuring that buffers are adequate is not just a task for regulators. it is in the interest of banks too. it contributes to restore confidence in the sector. improving bank profitability in a sustainable way, for example by adjusting business models, would help banks improve their capital generation capacity while also making it easier for them to raise capital externally when needed. this brings me to the concept of macroprudential stress testing, a key analytical tool that helps us assess the resilience of the financial system over the cycle. unlike regular supervisory stress testing, it accounts for banks ’ reaction to adverse circumstances and its impact on the real economy that may further stress banks ’ operating environment. as such, it can provide a more complete picture of banks ’ performance and capital needs. it can therefore lead to more realistic 2 / 4 bis central bankers'speeches results for policy use. the ecb ’ s macroprudential stress test framework