jean - claude trichet : reflections on the global financial system keynote speech by mr jean - claude trichet, president of the european central bank, at the 2007 25th anniversary iif annual membership meeting, washington dc, 20 october 2007. * i. * * introduction it is a great pleasure to be here on the occasion of the 25th anniversary iif annual membership meeting. during the last quarter of a century, the institute has proved to be both an important coordination forum for the international financial industry and a counterpart to international financial institutions and fora, making many valuable contributions to the international dialogue on the global financial system. back in 1983 when the institute was founded – in response to the international debt crisis – one of its key jobs was to provide its members with information about the policies and performance of borrowing countries. as time passed by, the range of the institute ’ s activities broadened and it has worked as well on such issues as global financial regulation. moreover, it played an active role during the last number of years in the debate about the international financial architecture and emerging market policy issues. celebrating today ’ s anniversary brings to mind not only the many policy issues that we discussed over the past 25 years but also the many colleagues and friends from all parts of the world whose professional careers are in various ways linked to the development of the international financial system and to the issues that the institute has been dealing with. i myself have interacted with the iif on many occasions, not only back in the 1980s when i was chairman of the paris club, but also thereafter in my capacity as governor of the banque de france and today as president of the european central bank. in my talk today, i will seize the opportunity of the 25th anniversary of the institute and share with you some thoughts on two broad issues that i deem particularly relevant. first, i will recall the past financial crises that have hit emerging market countries over the last two and a half decades and focus on the progress that has been achieved with regard to devising mechanisms for crisis prevention and crisis containment. second, i will take a closer look at the recent turmoil in financial markets and provide some preliminary reflections. ii. emerging market countries and their access to international financial markets the financial integration of countries into the global economy continues at a high pace. while advanced countries are the most financially integrated, emerging market countries have significantly increased their cross border asset and liabilities positions and hence improve their degree of integration. the tremendous benefits that are associated with this integration process

cyber resilience. we know that banks are already exposed to cyber risk. but they will become more vulnerable as digitalisation progresses. they will need to invest in staff who have the appropriate skills to handle such risks. and they will have to comply with rules and regulations on this front. ecb banking supervision will do its part. we will launch a number of on - site inspections on cyber risk in 2019, and we will continue to monitor the situation under our ssm cyber incident reporting process. we will also bring our expertise and knowledge to bear when contributing to guidelines being developed by the european banking authority on such issues. but the impact of technological change goes beyond banks. technology can also change the way in which we supervisors do our jobs, and it can change the way in which we think about risks. applying new technologies to banking supervision could not only make it more effective and efficient. it could also reshape our priorities. the greatest gains from what is known as suptech – supervisory technology – would be made in the collection and analysis of data. and there are many examples. automated reporting could ease the burden on banks and make data collection more efficient. machine learning could enhance the validation of data. virtual assistants could be programmed to address user complaints during data collection, for instance. in addition, suptech could help to improve the analysis of credit and liquidity risks. some experts even argue that suptech could become a third approach to supervising banks. in addition to the rules - based and principles - based approaches, there would be a data - driven approach. now, there is still a lot of uncertainty about the exact role suptech will play in the end. but it is already being applied here and there. let me give you a few examples from across europe. 2 the austrian central bank has developed a reporting platform that bridges the gap between the it systems of supervised entities and supervisors. the italian central bank is exploring ways of using machine - learning algorithms to forecast loan defaults. and the dutch central bank is working on the use of neural networks to detect liquidity risk. 3 but as a good supervisor, i must add a note of caution, of course – countering the optimism bias again. innovation is not risk - free in supervision either. suptech comes with a number of risks. think of the legal risks that arise when you start to handle ever larger amounts of sensitive commercial data. so as we supervisors start to apply new technologies, we must be