value accounting ; • the fsf has also endorsed principles for sound compensation practices that will better align compensation arrangements in financial firms with prudent risk taking, and make these arrangement subject to supervisory oversight ; • finally, we have endorsed principles for cross - border cooperation on crisis management that commit our members to cooperate in preparing for and dealing with financial crises. a significant amount of this work delivers on the g20 action plan and will be published as part of the london summit in the next few days. to be effective and retain legitimacy, the fsf ’ s international coordination activities need to involve the leading advanced and emerging economies. for this reason, we have recently announced the expansion of our national membership to encompass all of the g20 countries, as well as spain and the european commission. the expansion of the fsf ’ s membership will enhance the fsf ’ s ability to contribute to ongoing reforms of the international financial system. countries that are members of the fsf commit to co - operate in promoting financial stability, maintain the openness of the financial sector, endorse and implement international financial standards and to undergo periodic peer reviews of their financial, supervisory and regulatory arrangements. looking forward, the fsf needs to remain engaged with the most important issues and questions that have been raised by the present crisis. for example, as the turner review recognises, regulation needs to focus on the economic substance of financial activities, rather than the legal form assumed by institutions. we have learned that the activities of large, highly leveraged institutions of all kinds have significant systemic impacts and potentially pose critical systemic risks. for this reason, the fsf has initiated work to assess the proper perimeter of regulation – to evaluate which institutions, markets, instruments and activities need to be supervised directly with an eye to their systemic relevance, regardless of their legal form, and what regulatory tools are appropriate. finally, as authorities we need to improve our ability to recognise, assess and respond effectively to mitigate nascent systemic risks at the global level. this is by no means an easy task – as we have learned from the experience of the present crisis, many critical risks are hidden on and off the balance sheets of large, complex institutions, or in the exposures to complex financial instruments, or in the idiosyncratic characteristics of national markets. no single authority can realistically obtain a complete picture. yet, looking back on what was said by the fsf, the fsa and others in the leadup to the crisis, it is

pierluigi ciocca : supervision : one or more institutions? remarks by mr pierluigi ciocca, deputy director general of the bank of italy, to the conference on “ the new structures of financial markets : how should supervision be organized? ” held in bologna, 4 may 2001. * * * introduction the question of the allocation of responsibilities in banking and financial supervision is not a purely economic question, nor can it be solved merely on the basis of economic theories. until quite recently milton friedman was the only great economist to have addressed the issue, and even then as part of the broader problem of money and its management. many other aspects are involved, however, including : • the “ legal experience ” of a country, and hence the constitutional and institutional framework within which the question is set ; • how supervision has been and is performed, in terms of the resources, reputations and independence of the institutions concerned ; • the opinion of the markets in the light of their changeable “ conventions ”. the foregoing considerations suggest that the question should be approached, if not pragmatically, at least with prudent humility. the subject does not offer academic recipes suited to every context. one may nonetheless have opinions, based on arguments that have been worked out to a greater or lesser extent. i shall set out my own here, in the most generalized form i can achieve. the international picture these considerations regarding method are matched by an empirical observation. in recent times there has been no clear tendency for any one solution to predominate. basically, there are three alternatives : extreme centralization ( rare ), extreme decentralization ( less rare ) and intermediate solutions ( the most common ). the united states has remained faithful to a division of responsibilities in which the types of body entrusted with supervision are highly diversified, with 6 for banking supervision1 ( with 357 local offices and around 15, 000 employees ) and another 6 for financial supervision2 ( covering markets, insurance companies and pension funds with 137 local offices and some 8, 000 employees ). in addition, it is necessary to consider the self - regulatory bodies of the 9 most important financial markets. the overlapping of powers is accepted, desired, in view of the “ dialectics ”, the “ competition ”, it ensures between the various institutions and because it avoids monopoly. the number of persons engaged in supervision is huge. in the banking field it is about fifteen times the figure for the bank of italy ( about 1