are at stake. at the end of the crisis, when it is economically justified to downsize those measures, economic nationalism will be lurking again, albeit unintended. at the end of the crisis we may enter a period in which governments cannot sell their stakes in banks or downsize the coverage of the insurances schemes, without the risk of putting their institutions at a comparative disadvantage to their protected peers abroad. it ’ s time to start thinking about a credible exit strategy. again, coordination and timing are important. selling or reducing stakes in banks too early could reduce investors ’ and depositors ’ faith in those banks. getting out too late would cause a prolonged period of market disruption as institutions ( partially ) owned by governments are at a competitive advantage over privately owned banks. prolonged government intervention hampers the healthy effects of competition. normalization of the markets is far more difficult under those circumstances. even if unintended and socially justifiable, substantial state interests in financial institutions is effectively protectionism. guarantee schemes are a powerful tool to create confidence in banks and protect depositors, but the downside is that they stand in the way of market normalization. and the threat is not just that some governments may choose to maintain their policies longer than others. the terms and conditions of state withdrawal will materially affect a bank ’ s competitiveness vis - a - vis its peers. in other words, the level playing field is at risk. everyone can rationally envision the problems of downsizing crisis policies, and the subsequent reluctance of governments to reverse nationally orientated measures. especially if this puts their financial institutions at a comparative disadvantage. since all governments are going to face this dilemma, the only way out is coordinated action. if we fail to coordinate towards the end of the crisis, distortions will emerge and some governments will keep substantial stakes in credit institutions for a long time. while i don ’ t say governments shouldn ’ t hold stakes in financial institutions, i think it is time to discuss the terms and conditions, including the exit strategy. fighting this crisis has been a learning process. and i guess we are still on the steep part of the learning curve. we have definitely experienced that it can always get worse, and to be prepared for that. we have seen that measures labelled as “ too drastic ” may at some point become the appropriate response. and we have learned that you can ’ t fight a crisis like this on your own. by many standards this crisis has been, and still is

of their banks hoping to collect their savings lives on forever, even in movies. who can forget the american christmas classic it ’ s a wonderful life, when jimmy stewart and donna reed used their honeymoon savings to keep the bank open. we have seen the three elements of systemic risk at work many times since then. for example, during the asian crisis of 1997, the russian default crisis of 1998, and of course the global financial crisis of 2008. having been a witness to all these three crises in the course of my professional career, i must say each one of them was a fresh eye - opener. throughout history, financial policies have aimed to contain systemic risk and build resilience in the financial system. for example, after the financial crisis of 1907, the federal reserve was established to act as a lender of last resort. and after the banking crises of the 1930s, we saw the birth of capital requirements and deposit insurance, in the us and elsewhere. the reforms after the 2008 global financial crisis can be seen in that historic context. capital and liquidity requirements for banks were raised to increase their loss - absorbing capacity and to withstand an outflow of funds. capital requirements were raised even further for highly interconnected global banks. and counterparty credit risk was reduced by increasing margin and collateral requirements and by establishing central clearing counterparties. despite this historic tradition, there was also something new about the post - 2008 reforms. this time the reforms were a truly international effort. the g20 nations established a financial stability board that coordinated the development of new policies. the fsb also encouraged these policies to be implemented in a coherent manner across sectors and countries. the fsb was also given the task of monitoring the global financial system for new weaknesses and springing into action at short notice once a new crisis hit. since modern financial markets do not stop at national borders, that was a very important step. we still reap the benefits from this today, and i will discuss this aspect later on. so we have identified the elements of systemic risk and how this has shaped financial crises and policy responses. let us now look at how the financial system has weathered the covid storm. first and foremost, the bold policy response by governments, central banks and supervisors, helped maintain global financial stability and sustain the supply of credit to the economy. also, the global financial system, at least its core parts, is more resilient than it was ten years ago. this is largely due to the financial reforms in the