##s, and in off - balance sheet activities has become evident. consequently, a rebalancing of risk and return is required to ensure resilient institutions and a resilient financial system. to achieve this, a strengthening of the risk control framework is needed so that our financial institutions are ready to face the challenges that lie ahead. such a framework needs to put risk management at the heart of the strategy and decision making processes of each institution. the framework should be supported by the twin pillars of risk analysis, that is a suite of statistical risk models to provide a measure of the different risks faced by the institution and a comprehensive stress testing programme which consists of a more judgemental and coherent risk analysis based on scenarios that the institutions may be facing in the future. i will leave you with a final reflection : although the global economy may show signs of recovery, many uncertainties remain. there is no room for complacency as new challenges will undoubtedly arise. we must act now to rigorously implement risk control frameworks so that we are prepared to face the next challenge from wherever that may come. thank you for your attention. bis central bankers ’ speeches

jose manuel gonzalez - paramo : risk, return, resilience – the future financial system speech by mr jose manuel gonzalez - paramo, member of the executive board of the european central bank, at the 3rd annual risk and return russia conference, moscow, 14 april 2011. * 1. * * introduction ladies and gentlemen, as the crisis is still unfolding, we cannot tell with certainty how our economic and financial systems will function in the future. unfortunately, based on past experience, we can safely predict that individual banks, and the financial system as a whole, will face new challenges, and even crises. we, as risk managers, have the weighty responsibility of ensuring that our institutions are prepared to weather these financial storms. our role is not to eliminate the risk faced by an institution – this would not be possible or even desirable. in order to create resilient institutions, our role must be to act as guardians of the balance between risk and return. to do this, we must learn lessons from history ; however, we should not be blinkered by history – we must use our knowledge of the past, combined with our intellect and our imagination, to anticipate and design appropriate responses for the challenges of the future. in response to the crisis, a new risk control framework is evolving in many of our institutions. this framework puts risk management at the core of the decision - making process. today, based on lessons learned from the crisis, i would like to highlight some of the principles which should guide the development of this new approach. moreover, since this framework will require powerful quantitative and judgemental based tools to guide decision - making, i would like to highlight the importance of taking a twin pillar approach so that the risk to which an institution is exposed is recognised and controlled – here, i am referring to the twin pillars of statistical risk models and stress testing. although today i will focus on the framework being developed by institutions in the private sector, i would like to point out that many of the guiding principles as well as the quantitative and judgemental based tools are equally relevant in public institutions such as central banks. 2. the importance of the financial system1 before considering this new framework in more detail, let me first emphasise that the role of institutional risk managers and institutional - specific risk control frameworks is more significant than simply protecting an individual institution from failure : the concerted efforts of risk managers, regulators and central bankers can – and indeed must – ensure the resilience of