practices and better supervisory oversight, not only for derivatives, but also for bank risk management more generally. together, the industry and agency response helped stave off potentially restrictive legislation. another example of how supervisors are trying to build on bank management practices is their use of internal value - at - risk models in the calculation of capital requirements for market risk. by relying on internal models already used by the institutions for their trading and risk management activities, regulators can reduce burden while vastly improving the accuracy of the capital calculation. in addition, by embracing internal models for regulatory purposes, supervisors are encouraging organizations to incorporate sophisticated risk models more fully and formally into their risk management systems and to continue to upgrade and improve the models. as these two examples illustrate, supervisors recognize that they do not have all the answers and that rigid regulatory solutions may often do more harm than good. a supervisory approach that promotes continued improvements in private sector practices provides the right incentives to industry and, in the case of banking, also reduces risks to the federal safety net. in these ways, supervisors are placing greater reliance on a bank ’ s own risk management system as the first line of defense for ensuring safety and soundness. we also want to rely more on market discipline as another line of defense. this requires increased, improved disclosure of a bank ’ s activities, risk exposures, and philosophy for managing and controlling risk. we have made significant gains for derivatives and market risks. hopefully we will see further gains in other areas in the years ahead. while it is important for supervisors to identify risk at individual banks, as the central bank the federal reserve must also be watchful for conditions and trends external to the banking system that could place the financial system and the economy at risk. this broader perspective has become especially important with the globalization of banking and integration of markets. that is why the federal reserve has worked closely with financial regulators around the world to reduce systemic risk and promote sound banking practices and improved disclosures among both developed and emerging countries. these efforts have led to the advancement by the bis of core principles of bank supervision for authorities world - wide and, significantly, promotion of consolidated supervision of banking organizations by home country authorities. the issue of consolidated supervision is particularly relevant in revisiting the question of the modernization of the banking system. i will come to that in a moment. financial modernization and umbrella supervision first i would like to point out that whether legislative agreement is reached or not, market forces will continue the modernization of the financial services industry and will further

francois villeroy de galhau : present challenges for france ’ s central bank hearing of mr francois villeroy de galhau, governor of the bank of france, by the senate finance committee, paris, 30 march 2016. * * * madam president, general rapporteur, senators, thank you for receiving me this morning, just a few months after your vote of confidence. i attach great importance to these regular exchanges in order to inform you of matters essential to the banque de france. in 2016, the world in general, and europe in particular, are experiencing a period of uncertainty : uncertainties relating to our security, with the threat of terrorist attacks still real ; political uncertainties, with the risk of “ brexit ” and the refugee crisis ; as well as economic uncertainties, with lower economic growth in emerging economies, including china, and excess market volatility in january and february. faced with this turmoil, the eurosystem, of which the banque de france is a member, is acting decisively. its monetary policy is supporting the economy and creating a favourable environment for taking all the other actions necessary to return to strong, sustainable and job - creating growth : france, and europe, must seize this opportunity to regain confidence. 1. monetary policy, first of all, is doing its fair share of the work. the eurosystem is determined to fight the low inflation that we are facing today and thus underpin economic activity. this is our mandate and we are striving vigorously to achieve it. the new comprehensive package of measures that we adopted on 10 march 2016 reflects two main objectives : first, to return to inflation rates below, but close to, 2 % over the medium term. this is not the case at present since inflation stood at – 0. 2 % in the euro area in february, taking account of the sharp decline in oil prices, but it should return to positive territory in the second half of 2016. the other objective is to bolster the financing of the real economy and to protect it from the pressures related to market volatility. the new series of targeted refinancing operations extension of the asset purchase programme, for its part, will be of particular benefit to large french corporations. we are convinced that these additional measures will deliver concrete results, as did the successive measures we have implemented since june 2014. the latter have indeed boosted lending to businesses, while lowering the cost of credit, and made a 0. 3 % contribution