same time, consistent with the existing political and legal facts on the ground in europe. this decentralised structure is not set in stone. neither financial market integration nor the supervisory architecture has yet reached its final stage in europe. the current set - up nevertheless represents a sustainable foundation that was not shaken even by the tremors of the financial crisis. europe has done very well with this evolutionary approach which can be expanded further as market evolves. in my view, the cooperative supervisory model has good prospects of providing a stable setting for financial market regulation both now and in the years to come. a redesign of the supervisory architecture does not just concern the level at which competencies for supervision of individual institutions are allocated, however. what the crisis has done, in fact, is to broaden the perspective of the institutions responsible for financial stability in terms of paying greater attention to macroprudential issues. not so very long ago, financial stability analysis often had the reputation of being a “ fashionable ” subject. but the scale of global financial crisis and the force with which it hit the real economy have made it abundantly clear how important it is to have a more detailed understanding of how institution - specific and systemic factors interact. as you know, central banks have been concerned with analysing financial stability for some years now. i strongly support the attempts to gear the regulatory and supervisory system more closely to macroprudential principles. it is in the interests of all the financial market players to press ahead with the debate on the substance, objectives and operational framework of independent analysis of financial stability. ladies and gentlemen : we have here a distinguished panel of three panellists who are playing a leading role internationally and within europe in the evolution of the supervisory architecture. i am certain that the next one and a half hours will provide us with a stimulating debate on the future direction taken by the supervisory structure in europe.

to adapt its facilities to support continuous private liquidity creation. bank capitalization since the crisis began, the capital adequacy of banks around the world has been the subject of intense scrutiny. concerns moved quickly from bank exposures to u. s. subprime debt on to structured products of all types as the crisis spread and, finally, to more traditional credits to businesses and households as the recession took hold. concerns about capital adequacy for banks outside canada were made worse by uncertainties caused by accounting standards, valuation methodologies, and a loss of credibility of the basel ii regulatory capital standard. it was not lost on investors that every single financial institution that failed had a capital ratio well above its basel ii regulatory minimum the day before it went down. as a consequence, investors have demanded ever - higher capital ratios from all banks, creating a dynamic that has exacerbated the recession. in this context, canadian institutions have benefited from several factors : high initial capitalization ( minimums set by the office of the superintendent of financial institutions are well above the basel threshold ), high - quality capital ( with one of the highest proportions of common equity ), the clarity provided by a simple leverage cap, low exposure to structured products, and clear valuation and disclosure standards ( including rapid implementation of the financial stability forum's enhanced disclosure guidance of april 2008 ) ( chart 6 ). writedowns by canadian banks have been relatively moderate to date, reflecting their conservative lending practices and low exposure to highly impaired asset - backed products. but canadian banks, as the principal source of finance in our economy, are still exposed to the risk of a marked deterioration in economic conditions, which would depress earnings and generate losses in their household and corporate loan portfolios. in general, this risk is why banks carry high capital buffers. the macroprudential risk is that these capital buffers may not be allowed to play their intended role in absorbing these losses because of market pressures to maintain inordinately high capital ratios. this could force banks to curb balance sheet growth, causing a tightening of credit conditions that would reinforce the negative impact of the economic downturn on the financial system. reflecting the generalized nature of the financial panic, as the crisis unfolded, canadian banks came under pressure from markets to increase their capital ratios. in response, canadian banks raised significant additional, high - quality capital from private sources. the recent improvement in market sentiment has been reinforced by the release in may of the stress -