month, the stock markets in the euro area had broadly stabilised after a strong recovery in 2009, which mainly reflected the impact of improving macroeconomic news and better corporate earnings prospects. chart 9 on slide 14 shows that most conventional valuation measures, such as the long - term price - earnings ratio do not suggest that valuations are particularly high by historical standards. but there is a risk of heightened financial market volatility, if expectations of macroeconomic outcomes are disappointed. i would also like to briefly comment on the current state of the euro area securitisation markets. the securitisation markets were rendered dysfunctional by the financial crisis for a variety of micro and macroeconomic reasons. efforts are being made both by the financial industry and the policy - making community to address the most important micro issues, including the lack of transparency, product complexity and inappropriate incentives in the originate - to - distribute model. however, in recent months there have been some, albeit nascent, signs of improvement in securitisation activity, in part supported by a narrowing of spreads on securitised products ( i. e. yield on securitised products over libor ). the narrowing spreads, which reflects the compensation investors are demanding for holding these assets, could bring prices closer to levels where issuance of abs securities makes economic sense. this has been indicated in the responses to ecb bank lending surveys and in lower retention rates by banks for newly - issued abs. while it is difficult to disentangle the relative contribution of micro and macro factors to the improvement, it seems clear that the improved economic outlook has played an important role. iv. overall assessment let me now conclude with the overall assessment of the identified risks to euro area financial system stability ( slide 15 ). although the main risks to euro area financial stability essentially remain the same as those to which attention was drawn in the last issue of the fsr, their relative importance has changed significantly over the past six months. ultimately, the significance of risks for financial system stability must be judged by the probability of their materialisation in combination with their likely impact, both on the financial system and on the broader economy, in the event that they do materialise. by this criterion the two most important risks for euro area financial stability at the current juncture are, first, the possibility of concerns about the sustainability of public finances persisting or even increasing with an associated crowding - out of private investment and, second, the possibility that adverse feedback between

framework. while the overall responsibility of risk management rests with the board of directors, it is the duty of the ceo to display leadership and transform the strategic direction set by the board in the shape of policies and procedures and to institute an effective hierarchy to execute and implement those policies. sbp desires a more active role of the board in setting the strategic direction of a bank as well as to bring them under accountability. the formulation of policies relating to risk management only would not solve the purpose unless these were clear and effectively communicated down the line. the ceo as a leader must ensure that these policies are embedded in the culture of the organization. for the value of risk management to be realized, integration is essential. therefore, the emphasis should be on integrating risk management into the existing management structure and processes, rather than operating as an appendage. the above discussion highlights four key areas that have contributed to the crisis and remain relevant for both financial and non - financial firms ; weaknesses in corporate governance arrangements ; excessive risk taking for short term gains, inadequate accounting standards and regulatory requirements in some areas, and mismatch between the remuneration systems and strategy and risk appetite of the company. most of the multilateral agencies and financial regulators have now increased focus on building a more resilient financial framework including developing new standards for addressing the above challenges. like any real life crisis, the present turmoil in the financial sector provides an opportunity to learn from the financial world ’ s mistakes and overzealousness. this gives us the opportunity to look back and see what went wrong and structure our own financial houses so that this does not happen to us, or so severely affect the world again. in this regard i feel the most significant lesson that we have learnt from recent events is the importance of fundamentals in risk management. for instance there is a basic rule since inception of banks which says “ do not put all your eggs in one basket ”. had this simple rule been followed, many institutions could have avoided huge losses. the challenges posed by the global financial crisis have impacted leaders of all major businesses. elevating corporate governance should not be confined to banks, but commercial concerns must also do the same. we all know the pace of globalization has accelerated, resulting in increased domestic and global economic integration. today we cannot just shrug off failures within a particular sector or sometimes even a single entity if it has global linkages. gone are the days when a financial or political crisis in one country could be contained to that country