who point to the ecb variant of pragmatism, as well as by those who think the interest rate should be lower and who see the fed's pragmatism as their ideal. this is a debate which in essence is based on misunderstandings. the constraints within which the riksbank works, allow a monetary policy which is both flexible and pragmatic. we can certainly extend our target horizon, monitor risks of problems in the financial sector or act early in order to avoid major subsidence in the economy further ahead. but this places requirements on us to motivate our actions clearly and substantially. it is, therefore, in this context – by setting very high standards as regards clarity and openness – that we beg to differ. in essence, i think that demands made on us that we should be more pragmatic in some general way – and not keep to our way of reasoning with a target, with guidelines, etc. – are meaningless. less clear principles for policy in combination with reduced transparency regarding, for example, the reasons for making decisions, will hardly lead to a policy which will be more successful in the future. many years'experience in the vicinity of economic policymakers suggests to me that the opposite is more probable. among the most important things one can do in this type of work is to try to build up clear processes which contribute to decision data, based on good economic analyses, being produced in a systematic way. and that this decision data is subjected to as wide an examination as possible. i am convinced that our ambition to be as clear and open as possible has served us well. starting with a numerical, symmetric objective and a guiding rule, in the way that we have done, we have been forced to think through every question with which we have been confronted in a more precise manner. this has resulted in our gradually increasing our understanding in a way which i think would hardly have been possible otherwise. certainly it is not yet over, and in this context, future developments will place new demands on us and impose further intensification and exactitudes. there is also a connection between transparency in relation to the outside world on the one hand, and internal work on the other. in getting rid of secrecy we were able to introduce a more realistic debate on monetary policy. this has allowed sharper and more specific criticism from outside, something on which we thrive. in addition, i think that decision making should be made in a way which contributes to

encourage regulatory arbitrage and thus tend to heighten systemic vulnerability. therefore, the bundesbank is very much involved in the work of the fsb. i would like to restrict myself to highlighting just two aspects which enjoy a very broad consensus in the international debate. first, there is consensus on one of the points mentioned earlier, namely the need to strengthen financial institutions ’ resilience ; the capital and liquidity buffers for weathering crises have to be increased. more robust capital and liquidity requirements as well as an improved measurement of exposures to risks are also necessary so that risks arising from excessive leverage can be better controlled in the future. due account should be taken when devising and implementing rules of the particularities and peculiarities of national financial systems. this is especially important with regard to the aspired improvement in the quality of banks ’ capital base. here it is essential to focus on the targeted function – the ability to absorb losses – rather than on legal form. in view of the ongoing difficult economic environment, it is also evident that appropriate transition periods have to be granted. overhasty implementation would pave the way for a likely capital - induced credit supply failure. second, we must ensure that the incentive structures of participants in the financial system are aligned with the objective of fostering a sustainable development. this will be facilitated by enhanced transparency, which strengthens market discipline, even though it is obviously not sufficient on its own. this applies especially to the securitisation process. significantly improved standards of quality and integrity are a key precondition for reviving the securitisation market. originators should have a direct interest in ensuring that all risks ( including those of correlated defaults ) are captured adequately – for instance by retaining a vertical slice of securitisations. provided the instruments are designed in a way which makes microeconomic risk - taking compatible with sound macroeconomic outcomes, they can play an effective role as a source of funding for the banking sector. they will thereby also contribute to reliable and properly priced lending to enterprises – which is the most important aspect from an economic perspective. in a nutshell, the internationally coordinated reforms should substantially increase the stability of the financial system. on balance, they will probably imply more moderate earnings prospects in the financial sector. however, earnings are also likely to be less volatile and therefore more robust. given the considerable negative externalities that may arise if financial institutions run into distress, that seems a price worth paying to safeguard financial stability