more intensive focus on the firms that pose the greatest risks to financial stability than was the case before the crisis. this more intensive approach involves a higher reliance on judgment based supervision and a more forward looking and proactive stance. supervisors are empowered to use their judgment. they no longer need to wait for a problem to occur to take action. an example is the uk stress test i referred to earlier which is carried out jointly by the fpc and pra : firms who do not meet the standard will be required to take action. a crucial part of this more intensive supervision is not just to look at the activities of the firm, but also much greater scrutiny of the quality of its governance and management. this includes a very thorough and careful assessment of the suitability of those who run regulated firms, as well as time spent looking at the board as a whole to ensure that it has sufficient experience and character. for the largest firms, the pra board is involved in these judgments and in approving the appointments of the most senior staff. and, in marked contrast to the pre - crisis period, there is a much greater focus on a firm ’ s business model and the firm ’ s understanding of their vulnerabilities. this enables the supervisors to assess if there are risks posed to financial stability by the way that the firm chooses to conduct its business, or if indeed it is not viable. the aim is not that the supervisors should run firms. but they should not be shy to question if executives and boards have the right capabilities, if they understand the business model and the particular risks to which it is exposed and, overall, whether that business model can be operated successfully while managing the risks it entails. these three changes in the official landscape – macroprudential policy, more powerful international governance and more intensive supervision have shaped, and will continue to shape the world in which banks operate. but it is less clear what the changes on the other side will be : how banks will respond to the new regulatory and economic environment. there is much soul searching in the industry about what the future looks like. the reform programme and returns in banking the most marked change in this new landscape is the much greater amounts of capital in banks and as a consequence the much reduced level of leverage. headline levels of required capital have increased. and the risk associated with many types of assets and business activities has been fundamentally re - appraised. for the largest firms, the equity levels required will be around 7 times higher than

to be a feature of the banking landscape for the future. bis central bankers ’ speeches when leaning against the wind of the credit cycle, macro - prudential authorities do, like their monetary policy colleagues, still need to find the optimal path. to use the words of the uk chancellor, their objective is not to ensure “ the stability of the graveyard ”. how they balance cost and risk, where they set the trade - offs, will depend in large part on how confident they are about the underlying resilience of the system – in other words how well they have done on the first impulse. international governance the second big change i want, therefore, to highlight is the development since the crisis of much stronger international governance. this stems from the creation, at the april 2009 g20 london summit, of the financial stability board ( fsb ). and, equally important, from the decision at the summit that the fsb should report directly to the g20 leaders and finance ministers to give it the necessary “ clout ”. working with the standard setting organisations like the basel committee, the fsb has provided the drive and coordination to reform and develop global standards for bank capital, liquidity, and resolution. if one remembers the best part of a decade that it took to develop and reach agreement on the basel 2 capital standard, the progress made and international agreement reached over the past 5 years has been extraordinary. the g20 summit in brisbane will, i hope, mark the end of a major phase in this work with proposals to help end “ too big to fail ”, including ensuring that banks hold debt that can absorb losses – i. e. be “ bailed in ” – if the bank fails, and a private sector agreement to provide for stays on derivative contracts during resolutions of failed banks. this stronger international framework has not been an accident. the crisis brutally underlined the degree to which countries were connected to each other through the operation of a global capital market and banking system – and the dangers of regulatory arbitrage between jurisdictions. the fsb and the international standards that have been developed are, it is true, only “ soft law ”. they are not legally binding. they constrain neither the powers of national regulators to set the rules for their jurisdictions nor the accountability of national regulators to national legislatures. but this soft law is powerful because it is grounded in the recognition by the major jurisdictions that we can only have a globally integrated capital market – and the benefits that brings – if we