of negotiations is encouraging, and the applicant countries should be applauded for their great efforts towards meeting the economic and political entry criteria set by the copenhagen european council in 1993. beyond that, it appears that the very prospect of eventual participation in emu has also helped to establish clear policy orientations. naturally, the ecb takes a keen interest in developments in the future member states and has established the relevant contacts. i should like to conclude that the ecb is well aware of the challenges ahead, and that we are still far from “ business as usual ” – despite the smooth and successful launch of the euro. with the establishment of economic and monetary union, the eu has recorded an outstanding historical achievement, but the task of making emu a success will be an ongoing one, and perhaps even more momentous challenges in the wider europe are awaiting our response. thank you very much.

. basel. bis central bankers ’ speeches extreme events. in other words, risk management has to be prepared for anything at all times. what role can regulation play? if we accept that the next crisis may come unexpectedly, out of the blue, there is one key strategy – and that is to draw a line of defence which is independent of the nature of the crisis. the central building block for such a line of defence is capital, or equity, to be precise. capital buffers are the most general means of protecting a bank from shocks, regardless of whether they are expected or come out of the blue. consequently, the reform of financial regulation has focused on strengthening the capital rules for banks. the new basel iii framework requires banks to hold more capital of a better quality. this will make banks more resilient and better prepared to survive future crises. 4. conclusion ladies and gentlemen, the financial crisis came out of the blue and has left a lot of damage in its wake. hence the starting point of my speech today – that we have to attempt to feel our way in the dark in order to better anticipate future crises. this requires two things : the willingness to see in the dark and the ability to do so. with regard to the willingness to see in the dark, i talked about setting the right incentives for banks to engage in prudent risk management. the “ too big to fail ” problem and compensation schemes were two examples of how financial regulation can strengthen incentives. with regard to the ability to see in the dark, the outlook is less optimistic. research shows that people are naturally disadvantaged when it comes to handling risks and probabilities – a deficiency that statistical models can mitigate only to a certain extent. consequently, banks need universal buffers to prepare for shocks, regardless of where they come from. and, in this context, equity is the most general buffer. that is why the reform of financial regulation focused on improving the capital rules for banks. however, we still have to feel our way in the dark when it comes to regulation. we have increased capital buffers, but have we reached the right level? this is an issue we must endeavour to shed more light on. to sum up, crises will never adhere to our schedules, and we will never be able to prevent the threat of future crises. all we can do is to mitigate its impact. pursuing this objective is worth all our effort and the progress that has been made in the area of financial regulation