, the ecb will continue to play an active role in safeguarding financial stability in europe. the ecb vice president will go into greater detail at tonight ’ s conference dinner on how we are preparing for that task. the main challenges that i see ahead in the area of regulating systemic risk are as follows : first, determining the perimeter of regulation. it is important that the regulatory web is cast wide enough to ensure that all systemically important institutions, markets and products are captured. caution is also necessary to avoid that tighter regulation simply shifts activities to unregulated market segments or entities. therefore, the steps taken towards more harmonised banking supervision as well as the progress made in europe towards a directive on alternative investment fund managers, which affect financial markets through their tight web of interlinkages with the financial sector, are appreciated. second, ensuring the availability of information and data. the detection and the early warning on systemic risk crucially depends on the quality and the availability of relevant data as well as on the adequate assessment of the risk bearing capacity of the system. therefore it is important that information is made available that can feed into future assessments of systemic risk, especially in view of this being a key input into the working of the newly founded esrb. in this regard, it will be equally important that the use of qualitative data and market information is strengthened and that this information will be fed into the regular analysis of systemic risk in a more systematic way. and third, measuring systemic risk. a basic difficulty in regulating system risk relate to the difficulty in measuring the contribution of individual institutions to systemic risk. the importance of an institution for systemic risk is a function of its size, interconnectedness and substitutability. one way for regulators and private markets to be able to monitor financial institutions and to assess their systemic reach, is to assess the risk of multiple defaults. measuring such risk is difficult, as measures may be too backward looking or face data limitations. i am happy that after the break we will have the chance to hear about the latest advances on how to measure systemic risk in the keynote speech by professor robert engle from new york university. he has developed a measure of systemic risk capturing the systemic impact of an individual institution ’ s shortfall and which is published in the so - called nyu stern systemic risk ranking. the keynote speech will be followed by two outstanding papers on measuring systemic risk. kim and giesecke will present a paper estimating systemic risk on the basis

fixed and the banking union completed. otherwise, market participants will continue to fear that local vulnerabilities could eventually spread and destabilise the european banking system before all the firefighting tools are ready to be deployed. the aim must be to move forward swiftly on both risk reduction and risk sharing. risk sharing involves both the public and private sectors, for example by ensuring the same level of deposit protection through a european deposit insurance scheme, but also by continuing to build a capital markets union in europe. the eu and emu also need to face up to their institutional weaknesses. on average, people ’ s trust in both national and eu political institutions is very low. as regards the national level, we know from the economic literature that strong institutions are crucial for sustainable economic growth and governance indicators suggest that there is room for improvement in many member states. as regards the european level, the gap between people ’ s expectations and the eu ’ s institutional setup is widening : • first, the perceived legitimacy of the eu remains low. the eu is not regarded as “ efficient ” and only a minority of citizens feel that their voice counts in the eu. • second, opinion polls suggest that citizens are not opposed to european decisionmaking. specifically, they want the eu to concentrate on their key concerns, notably to protect them better from economic and security risks, and to provide solutions. when responding to these expectations, the eu and emu face however two challenges : • the first has to do with subsidiarity : it should be made clearer where the eu has an advantage over member states in terms of exercising competence and where not. a better demarcation of competences between the european and national level is desirable – but not easy. loose coordination at european level may give the impression that a competence has been passed to the european level, when in fact it continues to be exercised by member states. the result tends to be that the eu gets blamed for apparently seeking to interfere in national affairs when in fact it does not effectively have the power to do so. it should not be so surprising that in such situations the practical result is a lack of coherent action across the eu. this, in my view, means that responsibilities and accountability lines should be more clearly defined and assigned, as europe has done with the single monetary policy and the creation of the european central bank. • the other challenge has to do with intergovernmentalism. the rationale for the intergovernmental approach is to ensure that decisions