at national level more complex and sometimes open to question. it is likely that the expansion of the committee to the leading emerging economies, which was also inevitable, had a similar effect. today there are about 30 member countries, and they differ from each other much more than the initial group of countries did. 2 / 8 bis central bankers'speeches the first agreement, implemented in the main jurisdictions in 1992, marked a shift from ‘ structural ’ supervision, in many countries ( including italy ) based on authorisations and administrative controls, to the ‘ prudential ’ kind. since then, the aim of ensuring the sound and prudent management of banks has mainly been pursued by requiring bank to maintain a minimum ratio of capital to risk - weighted exposures, rather than through direct and discretionary action by the authority. basel i divided credit exposures into four broad classes, with coefficients increasing as the counterparty ’ s theoretical riskiness rose. this was meant to provide banks with sufficient resources to withstand unexpected losses, and discourage excessive risk - taking. in italy, the transition from structural to prudential supervision was marked by the new consolidated law on banking. there were two main shortcomings to basel i : ( i ) it only covered credit risk ; and ( ii ) the weighting scheme was insufficiently granular, as it was based merely on the legal nature of the counterparty and made no attempt at approximating borrowers ’ risk at the individual level. in order to surmount the first shortcoming, the market risk amendment was adopted in 1996. it introduced minimum requirements for market risks and included a new class of capital instruments for coverage ( ‘ tier 3 ’ ). the mra also marked a conceptual turning point : faced with the variety and complexity of the statistical and mathematical tools needed to assess market risk, banks were allowed for the first time to use their own internal models to calculate their capital requirements, subject to validation by the supervisory authority. basel ii sought to remedy the second shortcoming by introducing the three - pillar framework of rules that is still in place. the first pillar provides for quantitative capital requirements in relation to three risk categories ( credit, market and operational risk ) ; banks can compute the requirements using either a standardised approach or their own internal models. the second pillar, which is of a more qualitative nature, requires banks to have their own risk assessment and capital adequacy control process, and entrusts the supervisory authority with the task of verifying

of the european continent. a small island with a part of it under occupation, thrives thanks to its extroversion and its people, who despite having been put to the test so many times in the past, have never stopped creating, evolving and moving forward. i have no doubt that together with our european partners we will take all the necessary actions to overcome this challenge as well, guided by our common core values and principles. as the great french novelist victor hugo said, " changez vos opinions, gardez vos principes ; changez vos feuilles, gardez intactes vos raciness " " change your opinions, keep to your principles ; change your leaves, keep intact your roots ". here in cyprus we often say that " a captain is proven capable when she is in a storm ". and hence, i consider ourselves lucky since our ecb captain steering us through both the covid and geopolitical storms is christine lagarde, a leader of undoubted capacity and experience, whom i thank again for being with us today and would like to invite her to the podium to share her thoughts with us. 3 / 3 bis - central bankers'speeches