and market risks have diminished with their progressive transfer away from banks ’ balance sheets, but other types of risks have emerged. the reputation of a bank is inevitably and increasingly affected by the quality of the products it supplies to its customers. there has also been an increase in both legal and operational risks. the banks ’ increasing role in the distribution of third parties ’ products makes it crucial to monitor for conflicts of interest. it is extremely important that conduct should be ethical. the integrity and completeness of the information provided to the public must be guaranteed and internal controls must be reinforced. staff incentives must be designed to prevent the risk of improper conduct. 3. supervision international cooperation between banking, insurance and financial market supervisory authorities is strengthening. in view of the close links between the systems of the major areas - in the first place those of central and western europe and the united states, but also to an increasing extent those of eastern europe and asia - supervisory cooperation has spread to the global level. in europe, the nationally based organization of banking supervision is in conformity with the cardinal principle of the single european market, founded on minimum harmonization and mutual recognition. supervision on a national basis permits the authorities to operate near the entities subject to control. it favours a constant exchange of information and direct contact with intermediaries. this is particularly effective if it is also realized by means of a widespread presence in the territory and through on - site inspections. banking supervision is rooted in the legal and administrative systems of each country, not least owing to the possible involvement of public money in crises. europe has equipped itself with a well - structured system of multilateral cooperation and bilateral agreements between the national authorities responsible for supervising the banking and financial markets. spurred by the guidelines set by the ecofin council meeting of oviedo in 2002, in 2004 the application of the lamfalussy reform was completed, extending to the banking and insurance sectors bodies and legislative procedures that had already been introduced in the securities field. the reform process sees national authorities and european institutions engaged in speeding up the approval of harmonized european regulation, ensuring its uniform application in national law and further strengthening cooperation among the supervisory authorities. 4. derivatives in the last four years the cyclical slowdown of the global economy, stock market turbulence, the failure of large companies operating at international level and the default of sovereign states have subjected financial systems to strong pressures in both advanced and emerging economies. banks have demonstrated a great capacity to absorb the destabilizing impulses.

levels and resorted to unconventional expansionary measures ; governments used their budgets to support the financial system and sustain demand and employment. these measures will have to be gradually phased out. as we emphasized at the last meeting of the governing council of the european central bank, the current level of official interest rates in the area is appropriate ; no medium - term risk of inflation has emerged. the eurosystem ’ s operations to support liquidity and banks ’ lending capacity are continuing. nevertheless, the unconventional measures that are no longer necessary thanks to improved financial market conditions are being gradually discontinued. in december, we announced that the main refinancing operations with twelve and six - month maturities would not be repeated beyond december and march, respectively. the exit from the current set of unconventional monetary policy measures should not be premature so as not to hinder recovery, but neither should it be tardy so as not to put price stability at risk and so as to avoid fuelling market distortions and speculative bubbles that would constitute the premises for new crises. at the beginning of march, we will take further decisions on the phasing out of the extraordinary operations, considering the prospects for price stability. the demand on the part of banks which may have difficulties raising funds can be satisfied without affecting monetary policy. as of now, it would appear necessary to normalize budget policies, at least by drawing up clear exit paths. the international monetary fund estimates that since 2007 in the leading advanced economies there has been a five - fold increase in the deficit, from 2 to 10 per cent of gdp. it also forecasts that budget deficits in the euro area will still be more than 3 per cent of gdp in 2014. in recent weeks, the state of the public finances in greece has alarmed the international financial markets. if the greek government adjusts its budget with determination, with careful monitoring by the european commission and the ecb, the markets will subscribe new securities as old issues fall due, as happened in italy at the beginning of the 1990s. it is nevertheless important that the euro - area countries have expressed their intention, should it prove necessary, to take decisive and coordinated action to ensure financial stability within the area. the public finances in many countries will be increasingly burdened in the coming years by costs associated with population ageing and climate change. a prompt and credible indication of the ways to correct the trend of the public debt is needed, among other things to reduce volatility in the financial markets and the issue