mutual dependence – where everyone is dependent on everyone else – and the rapid speed of transactions – where there is no time to resolve problems that may arise – all these factors together make the system more prone to failure. in existing and new regulations, including the forthcoming basel iii framework, regulators have focused on the problem of institutions being too big to fail. this is because of the pressure that having to rescue financial institutions has put on public finances. but, actually, we should be more worried about banks being too complex to fail. if institutions are too complex, it ’ s even more difficult and therefore perhaps more expensive to resolve them. the need for change is obvious. and responsibility for this change lies in your hands, too! i see three areas where you can contribute to achieving this change. bis central bankers ’ speeches first of all, banks ’ business models must not be unduly complex. in the past, we have seen financial institutions offering lending services, participating in trading activities, setting up joint ventures and combining their activities with insurance companies or businesses outside the financial sector. the products they offered ranged from traditional loans and lend - to - invest structures to all kinds of complex off - balance sheet derivatives. their activities were spread all over the world, while the risks and rules varied from one country to another. the big picture was therefore often lost. at the same time, the benefits of diversifying their activities in these different ways and at these different locations have proved disappointing. experience has shown that combining banking and insurance activities is not as effective in offsetting cash flows and exposures as was once thought. risks run on one side of the world are difficult to monitor from the other side of the world. and, this time around, the crisis has not been confined to one country or region, but has been felt all over the globe. a clear and simple business strategy and a streamlined business model will help reduce complexity. banks need to focus once again on their traditional roles of maturity transformation and lending to the real economy. this ties in closely with the question of how best to structure the banking sector. this is a relevant issue when we ’ re discussing the activities a bank should engage in. committees all around the world have examined this issue, as the volcker rule in the us, the vickers report in the uk and the european commission ’ s liikanen report show. all of them have one thing in common. they argue for a simpler banking sector focusing on traditional banking activities. these reports have resulted

well. the more complex an organization and its business model are, the more complex its risks will be. the rules that are meant to capture these risks will then be at least equally complex. the reverse is also true. in other words, the regulatory rules for banks engaging only in traditional lending and funding needn ’ t be as complex as those for banks specializing in more sophisticated products. the volume of regulations applying to less complex institutions can also be more limited. banks that don ’ t have investment operations, for example, can skip many of the trading book regulations. greater regulatory simplicity also has other advantages. detailed rules may make it more difficult for supervisors and financial institutions to spot actual risks. the requirements applying to risk models, for example, are quite detailed. institutions spend a lot of time and resources on them. you might think that if a model complies with all these requirements, the outcomes it produces will also be right. but it is still only a model, and you have to look at risks in more depth. overly detailed rules may also make decision - making less effective. for decisions may be based on compliance with rules instead of being true risk trade - offs. simple rules, by contrast, could help focus on the major risks. take, for example, a simple rule that states that all exposures must be covered by some form of capital. such a rule would automatically also apply to any new products or instruments. and it would include exposures that now – in my view, unjustifiably so – have a 0 % risk weighting, such as certain exposures to governments. a leverage ratio used as a backstop to these risk models would also achieve this, while still being easy to calculate and understand. and this is why supervisors are now taking leverage ratios into account when assessing institutional risk, in addition to the standard risk - weighted ratios. this allows for a multiangled view of institutions ’ risk profiles. other rules, such as limits on ltv ratios, may set clear limits on loan portfolios ’ risk profiles. that way, a smart combination of simple rules can help to highlight risks in an institution ’ s balance sheet. to be sure, risks should obviously be regulated in similar ways, whatever the sector. otherwise, risks will simply shift to less or non - regulated entities. simple rules can also offer guidance for the future. problems we experience in the future are unlikely to be exactly the same as in the recent past. we also cannot foresee