same time, consistent with the existing political and legal facts on the ground in europe. this decentralised structure is not set in stone. neither financial market integration nor the supervisory architecture has yet reached its final stage in europe. the current set - up nevertheless represents a sustainable foundation that was not shaken even by the tremors of the financial crisis. europe has done very well with this evolutionary approach which can be expanded further as market evolves. in my view, the cooperative supervisory model has good prospects of providing a stable setting for financial market regulation both now and in the years to come. a redesign of the supervisory architecture does not just concern the level at which competencies for supervision of individual institutions are allocated, however. what the crisis has done, in fact, is to broaden the perspective of the institutions responsible for financial stability in terms of paying greater attention to macroprudential issues. not so very long ago, financial stability analysis often had the reputation of being a “ fashionable ” subject. but the scale of global financial crisis and the force with which it hit the real economy have made it abundantly clear how important it is to have a more detailed understanding of how institution - specific and systemic factors interact. as you know, central banks have been concerned with analysing financial stability for some years now. i strongly support the attempts to gear the regulatory and supervisory system more closely to macroprudential principles. it is in the interests of all the financial market players to press ahead with the debate on the substance, objectives and operational framework of independent analysis of financial stability. ladies and gentlemen : we have here a distinguished panel of three panellists who are playing a leading role internationally and within europe in the evolution of the supervisory architecture. i am certain that the next one and a half hours will provide us with a stimulating debate on the future direction taken by the supervisory structure in europe.

ratio. throughout 2010 the proposed measures will be calibrated on the basis of an extensive quantitative impact study. the fully calibrated set of measures will then be issued by the end of 2010 and the new standards will be phased in by the end of 2012 provided that economic recovery is assured. the proposed measures will certainly help to reduce the likelihood of individual bank failures. however, even though such events have proven capable of destabilising the whole financial system, totally eliminating the risk of failure would be highly detrimental to growth and efficiency. regulation at the microprudential level therefore has to be supplemented by a macroprudential stance that takes into account the stability of the financial system as a whole, thus constituting a second line of defence against systemic crises. a major concern in that respect is the treatment of systemically important institutions, as their failure might lead to system - wide disruptions. when approached at a more detailed level, the concept of systemic relevance proves to be rather complex. contrary to common perception, systemic relevance is driven by more than the sheer size of an institution. factors such as interconnectedness, substitutability and the state of the markets also determine whether the failure of an individual institution will have a systemic impact – the banks that played a core role in the crisis were actually often not that large. consequently, we need to put some effort into finding a reliable way of identifying systemically important institutions, and we might also have to accept that systemic relevance is not a zero - one criterion. the difficulties do not stop there. once an institution is defined as systemically relevant, moral hazard problems might occur. as the institution in question would most likely be aware of the fact that it cannot be allowed to fail, it would have every incentive to engage in riskprone behaviour and gamble on being bailed out as soon as it gets into trouble. any measures aimed at systemically important institutions must therefore take into account the moral hazard dimension. the reform of the basel ii framework is certainly part of the solution to this problem, as it will help to improve the capacity of systemically important institutions to absorb losses without creating moral hazard. however, what is required is a more comprehensive approach which specifically ensures that accountability is brought back into the game. major proposals that go beyond the reformed capital and liquidity framework include capital surcharges for systemically important institutions, better resolution regimes and a strengthening of the financial infrastructure. commissioned by the g20, the fsb