regarding financial institutions, their next generation models of risk management will have to incorporate the non - linearities and discontinuities of modern financial markets. we may have already moved toward some form of a new international monetary framework. to conclude this section, i remark that the wide range of coordinated responses to the crisis that we are witnessing, a characteristic feature of which has been the predominant role played by central banks, has perhaps sawn the seeds of a global monetary framework. i think of massive recapitalizations of systemically - large institutions and crossborder financial firms and the boosting of deposit insurance limits. at monetary policy level we have witnessed not only concerted action in lowering the policy rate but also narrowing the policy corridor and through asset swaps, provision of cross - border liquidity in us $ and € in unlimited amounts as well as a lengthening of the term funding. this coordination has been accompanied by the enlargement of counterparties either directly or indirectly and we have also seen a broadening of eligible collateral. this new emerging monetary policy framework adjusted in emergency times was required by large cross - border and globalized financial institutions and products. the more flexible and diversified framework of the ecb has, in this respect, proven its benchmark capacity in times of duress even if itself has been enhanced since. the world has moved toward a much more significant coordinated role of central banks in preserving world financial stability. after the times of duress we are living, it is likely that this de facto framework might evolve toward a more institutionalized set with some ingredients of a world system of information sharing, with world collateral and world monetary policy. from a system of national regulators and supervisors to an eu stability framework financial stability frameworks in the eu are largely national. each country ’ s supervisory authorities drive their legitimacy from national parliaments, are subject to national accountability mechanisms, and are financed nationally. each country ’ s authority is these features of crises were already present in the case of continental illinois ( 1984 ), and more recently in the barings ’ crisis ( 1995 ) and ltcm collapse ( 1998 ). responsible for the consolidated supervision of financial institutions domiciled in that country for which it is the home supervisor. host supervisors are responsible for subsidiaries of institutions from other countries operating in their territories. national authorities are organized differently in the eu, e. g., as a single authority, or according to a sectoral model. their mandates also differ with some including financial stability,

yves mersch : financial crisis and the challenge of supervision welcome address by mr yves mersch, governor of the central bank of luxembourg, at the ese ( european supervisor education initiative ) conference 2011 : “ financial crisis and the challenge of supervision ”, luxembourg, 28 september 2011. * * * ladies and gentlemen, it is a great pleasure and an honor to host the 2011 european supervisor education initiative conference on financial crises and the challenge of supervision here in luxembourg. i am pleased to note that so many participants from the supervisory and central banking community are attending. i am convinced, that stimulating input by the distinguished discussants will be beneficial to all participants. the banque centrale du luxembourg, given its mandate of prudential liquidity supervision and its role in macro - prudential policies, has joined the european supervisor education initiative in 2010. against the background of renewed vulnerabilities and turbulences in markets, the subject of the conference is indeed very timely. liquidity risk, together with sovereign and funding risk constitute for the time being the main threats to the eu - banking system. the recent intensification of tensions in the sovereign debt market has led to contagion risk of systemic nature. from a supervisory perspective, let me redraw that the past financial crisis have evidenced the fact that micro - prudential supervisory instruments and tools alone, if used in an isolated way, may no longer be sufficient to address the challenges posed by financial instability. the need has been highlighted to restructure regulation and supervision and to go beyond a purely micro - prudential approach in this regard. focussing on the development of a macroprudential framework should better position authorities to contribute to reducing pro - cyclicality and improving the financial sector ’ s resilience to adverse shocks. in response to the regulatory challenges, the european system of financial supervision ( esfs ) has been established, under which the european systemic risk board ( esrb ) has been made responsible for the macro - prudential oversight of the financial system as a whole. the work of the esrb, which is founded on close cooperation between central banks, national supervisory authorities, the european supervisory authorities ( esas ) and policy makers, will contribute to the mitigation of systemic risk within the financial system. however, despite the significant progress in institutional architecture at the european level, crucial areas within global and national financial systems remain fragile and vulnerable to unexpected shocks. all countries face a varying degree of challenges. in