in prudential treatment between credit and financial risks, especially striking as the latter were at the root of the crisis. there were also no liquidity requirements, nor any limits to concentration risk. in some cases, such as in italy, the effects of those gaps were mitigated by stricter supervisory practices and approaches. for example, we placed more stringent limits than elsewhere on the capital savings that could be achieved through the application of internal models. experience has given us no reason to regret those choices. while a full analysis of all the direct and indirect causes of the crisis is complex and certainly beyond the scope of this speech, it is a fact that the sparks that ignited the crisis appeared in places where the supervisory ‘ touch ’ had, in the end, become too ‘ light ’. given the traumatic experience of the crisis, the committee started to work on the development of new standards and the first basel iii text was published in 2010. the key elements of the reform were the following : ( i ) more capital, including through additional buffers, graduated according to the systemic importance of the bank, and also targeted at macroprudential risks ; ( ii ) capital of a better quality, i. e., made up of instruments that would effectively be able to absorb unexpected losses without triggering a default ; ( iii ) new requirements for risks that had previously been ignored, such as the credit valuation adjustment for derivative transactions ; ( iv ) liquidity requirements ; and ( v ) limits on leverage. i would like to say a little more on the last two aspects, namely liquidity and leverage. liquidity transformation is as intrinsic to banking as leverage, yet liquidity risk had been left out of international standards up until the great crisis. the safeguards introduced with basel iii ensure both greater short - term resilience ( through the liquidity coverage ratio, lcr ) and a better balance of maturities over the medium term ( through the net stable funding ratio, nsfr ). based on the experience of the old italian rules on maturity transformation, we had argued for a more structured nsfr requirement, that would cover maturities of more than one year more precisely, but we were unable to gain enough support. the two requirements, as approved, were nevertheless a decisive step forward. the leverage ratio, i. e., a minimum ratio between equity capital and non - weighted assets, was introduced as a backstop to risk - sensitive requirements. it is by definition a rough measure,

for reopening the debate on the prudential treatment of individual risks. the pandemic crisis has confirmed what the great financial crisis had already taught us, namely how important it is to have a financial system that is robust, adequately capitalised and fully aware of the complexity of the risks. * * * to sum up, let me say that the 13 years i spent on the basel committee, which coincided with the lengthy gestation and then the birth of basel iii, were a testing experience for me professionally, but at the same time an extremely rewarding one. that the previous system of standards had serious shortcomings i believe was, and is, clear to everyone. correctly identifying these shortcomings and finding remedies for them has not been easy : there are no exact sciences in this field. despite the support provided by the specialists ’ careful technical work on each risk individually considered, the overall assessment can never be simply the sum of individual analyses : not even in a formal sense, as no risk is independent of any other. we can only count on experience, on reasoned discussion, on an open dialogue with industry and with the market, and on real or hypothetical tests. the difficulty was exacerbated by the presence on the committee of countries with very different priorities and banking systems, different supervisory practices and a different degree of openness, both domestically and abroad. i benefited from the old tradition of italian supervision, which instilled in me a scepticism of solutions that are too mechanical, a rationally limited faith in the capacity of the financial market to correct itself, perseverance in examining all risks, and a cautiousness that makes it unadvisable to put one ’ s faith in just one methodology, however elegant and intellectually attractive, and preferable to use several imperfect yet complementary instruments instead. for instance, in the discussions about the output floor, liquidity requirements and the quality of core capital, italy ’ s experience was invaluable, and i believe i can say that in some way, whether big or small, it contributed to the collective outcome. the discussions have often been tough, and compromises have sometimes only been achieved after exhausting negotiations. interaction with industry, which is indispensable if we want to devise rules that are realistic and robust, has nevertheless sometimes had to contend with selfinterested resistance and exaggerated fears. the result is arguably not ideal, and i have given a couple of examples where