##dence ” or “ interconnectedness ” between financial institutions and between markets. this “ interconnectedness ” reflects a variety of direct and indirect linkages in the financial system and it involves institutions and markets that are regulated as well as those that are not subject to sufficient, or any, regulatory oversight. this second category includes not only hedge funds but also off - balance sheet financial entities, such as structured investment vehicles, as well as the securitisation market, and the market for credit default swaps ( cds ). in this respect, two points are relevant for the design of the regulatory policies. first, the size of some of the non - bank financial institutions and the overall magnitude of the activities of the “ non - bank, non regulated sector ” have become significant and can pose systemic risks. second, and as a consequence of the first, the “ interconnectedness ” of all institutions and markets implies that it is the “ collective ” behaviour of all that determines endogenously systemic risk and its potential impact on the real economy. a third lesson is that the increasing financial integration in europe and globally has important implications for the cross - border distribution and propagation of systemic risk and the appropriate institutional setting for the prevention and management of a crisis. more specifically, the regulatory framework and the supervisory arrangements in europe must be broadly compatible with those in other large economic areas, notably the united states and vice versa. and within the eu, the growing presence and significance of cross - border financial institutions ( the largest 43 cross - border banking groups in the eu accounted for 76 % of total eu bank assets at the end of 2007 1 requires the strengthening of the paneuropean character of supervision. a fourth and final lesson that i want to stress is that effective crisis prevention and management call for close cooperation and efficient information exchange between the supervisory authorities in various jurisdictions as well as between the central banks, whose tasks include the safeguarding of financial system stability, and the supervisors of individual institutions. the effectiveness of such cooperation, which is relevant both within countries, and across borders, crucially hinges on the exchange of relevant information in a timely manner. what broad conclusions can we draw from these lessons, and more generally from the recent experience, for supervisory policy? although the severity of the ensuing problems has differed across institutions and countries, overall the crisis revealed that micro - prudential supervision in many cases proved inadequate to identify, in a timely manner, the nature and size of accumulating risks and to impose

timetable ”. it is therefore essential that a suitable mechanism is in place to ensure that the required supervisory or regulatory actions are implemented in an effective and timely manner. no reflection on the appropriate macro - prudential framework for europe would be complete without due consideration of its international dimension. this global financial crisis has underscored the importance of concerted policy responses globally. the early identification and assessment of risks and vulnerabilities, the issuance of risk warnings, and the adoption of the related macro - prudential policies should be key responsibilities in a reformed global framework for financial oversight, in which the imf and the fsf should play a key role, but all relevant parties, including the new eu macro - prudential supervisory body, should be closely involved. our european framework should fit in, and be compatible with the global approach to be adopted. iv. conclusion in conclusion, let me emphasise that the establishment of the proposed eu body responsible for macro - prudential supervision, the effective performance of its tasks, the efficient translation of its risk assessments and macro - prudential policy recommendations into appropriate policy measures will require addressing a number of legal, institutional and organisational issues. one such issue is the institutional relationship and fruitful collaboration between the european systemic risk council and the envisaged european system of financial supervision. we should all contribute to addressing these issues in a constructive and timely manner, for the strengthening of macro - prudential supervision in europe is an important and urgent policy objective. thank you very much for your attention.