total assets over total capital ). 6. introduction of new regulations about liquidity ratios as proposed by the basel committee. 7. prevention of the development of a “ shadow banking ” sector by enlarging the perimeter of regulated institutions, like hedge funds, and reinforcing consolidation accounting rules. 8. tightening securitization regulations to avoid its misuse, its complexity, and opaqueness that prevented it from performing as predicted to diversify and dilute risk. what happened with subprime mortgage bonds, cdos and credit default swaps was appalling and should not happen again. 9. reduction of the reliance for official regulatory purposes on rating agencies that have contributed to the pro - cyclicality of the financial sector and played a very negative role in the subprime crisis. the mere registration and monitoring of their activity and the elimination of conflicts of interest may not be sufficient to correct their performance. 10. introduction of new principles regarding risk management and remuneration guidelines to correct prevailing perverse incentives with an excessive short - term perspective. with the exception of points 4 and 9, most of these aspects of a new regulatory environment are being developed by european union institutions or the basel committee, subsequently to general guidelines prepared by the financial stability board and approved by the g20. it would seem then that the work has been progressing in the right direction to create a more resilient and efficient financial system. nevertheless, i want to make a few comments on aspects that i consider more important or are being insufficiently addressed. the first point refers to the assessment of whether the new rules are sufficient to prevent the excesses of finance and, in particular, whether the macro - prudential function is being implemented in a really efficient way for the same purpose. my answer tends to be positive because instruments like the gross leverage ratio, the capital buffers, the liquidity ratios and the discretionary use of pillar ii may be enough for the task. the remaining necessary instruments are related with the “ too big to fail ” problem that i address bellow. regarding macro - prudential policy, it looks as if in all countries the institution in charge will be limited to making warnings and recommendations. in europe, the proposed composition of the european systemic risk board ( esrb ) with the inclusion of the commission and the 3 esa representatives should ensure that this may not become a problem, guaranteeing at the same time the necessary coordination between the micro and macro levels. the whole setup may work well

from monetary easing and interest rate declines. and a macroprudential policy would have provided awareness of the build - up of systemic risk. however, macroprudential policy was simply not part of the standard toolbox and the mostly procyclical fiscal policy that was followed contributed to rising imbalances in the economy in the early years of emu, making the subsequent adjustment more painful. let me say a few words on this. before 2008 – the accumulation of macroeconomic imbalances the significant degree of monetary easing in the run - up to emu provided a huge stimulus to domestic demand. as the “ new world ” of low interest rates and abundant financing seemed to offer a free lunch to the “ converging ” countries, several imbalances started to build - up in those countries, taking different shapes : • in countries such as portugal or greece, fiscal imbalances became a major problem – even if the size of the problem was substantially different. in both countries, savings arising from lower interest rates and boom - related windfall revenues were used to finance expansionary expenditure policies ; • in countries such as spain or ireland, fiscal policies were more prudent. still, imbalances built - up, mainly taking the form of a real estate bubble ; • in ireland, an oversized financial sector developed in tandem with the real estate bubble ( a similar phenomenon also occurred in non - euro eu countries, the most prominent case being iceland ). in portugal, from the mid - 1990s to 2007, the very substantial easing of liquidity constraints – arising both from the interest rate decline and access to a huge wholesale market for funding – led to booming private sector credit and a fall in households ’ savings rates. from 1995 to 2007, private sector debt almost doubled as a percentage of gdp ( averaging 187. 2 % of gdp during this period ), while households ’ savings rates almost halved. the increase in indebtedness was mainly used to finance consumption and low - return investments, mostly in the non - tradable sector. as a result, imports expanded and large current account deficits materialised, without a corresponding increase in the economy ’ s growth potential. from 1995 to 2007, the current and capital account moved from near balance to an 8. 6 % of gdp deficit. the public sector also benefited from lower interest rates and easier access to credit. in addition, booming private expenditure pushed up tax revenue. all else being equal, this should have meant substantially