to see how this fixed buffer, supposed to be on top of the minimum requirement, would not be perceived as a new regulatory minimum. also, it is very hard to see how this mechanism may not have adverse impact on banks ’ share ownership. another avenue to address procyclicality through prudential rules is by putting in place a countercyclical capital buffer. the logic is simple and, in principle, appealing : the mechanism, indexed on a macroeconomic variable, would force banks to build capital reserves when they can do so and allow them to consume such reserves in a downturn. this would be expected to ensure that banks accumulate and use self - insurance in synchronization with the financial cycle. in practice, we still need to clarify the conditions and the set up for triggering the release of surplus capital accumulated through the mechanism. such a mechanism may not necessarily be cumulative with others and we may have to choose. systemic risk and moral hazard as techniques for managing and allocating risk became more sophisticated, the network of counterparties expanded in scale and in complexity. this was, truly, a systemic change that was properly understood but not fully captured by regulators at the time. credit and market risk was supposedly more broadly spread. but counterparty risk increased. overall, the overall impact on financial stability may well have been negative. there might be a temptation to assess systemic risk through a crude “ size ” criterion. “ too big to fail ” certainly warrants special treatment. but, the position and role of even smaller or medium size actors may also put them in a situation to have a strong influence on the system ’ s dynamics. there is a need to account for other dimensions of systemic importance such as interconnection, complexity, substitutability. furthermore, the “ systemic ” character strongly depends on circumstances, the environment and the specific features of the financial system. drawing up an a priori list of systemically important institutions would give a false sense of certainty. it may also fuel the moral hazard associated with such firms being perceived by markets as – exactly that – systemic. various initiatives are currently discussed, including stronger cooperation between supervisors and, more controversially, additional capital charges. they certainly require further thorough analysis it is essential to avoid threshold effects and never forget that risks are continuous in nature, time - varying and state - contingent. the debate about systemic firms echoes also concerns about the activities and business models of some institutions. it is especially so in countries where public

accounting conventions need to be modified? or can other regulatory frameworks correct these effects? consistency of valuation rules this leads me to the last point that i would like to an address today : the consistency of rules and practices with respect to valuation. there are currently differences of approach between accounting practices, prudential regulation and risk management practices. it is thus wholly accepted in the financial industry that there is inevitably uncertainty surrounding the valuation of financial instruments, particularly when they are complex or illiquid. in addition, the limitations of mathematical models are recognised. these two factors, i. e. price volatility over the financial cycle and the limits of quantitative techniques highlight a number of divergences between internal risk management and fair value accounting. more generally, the application of accounting rules, which give the value of a company or activity at a given moment, does not always allow the forward - looking valuation of financial instruments or sound risk management practices. yet these aspects are important for prudential authorities. conversely, choices in terms of prudential regulation can have an impact on financial stability when they interact with certain accounting rules. for instance, the hitherto favourable treatment given by prudential rules to the trading book has without doubt encouraged behaviour aimed at generating very shortterm profits via transactions booked at market value. like me you will have noted that, in their press release in november, the g20 heads of state and government gave particular attention to accounting issues. the work programme they have assigned to ministers and experts addresses several areas. it is aimed at " harmonising accounting standards, particularly for complex instruments, during times of stress ". it also aims to " address weaknesses in accounting and disclosure standards for off - balance sheet vehicles ". lastly, it aims to " enhance the required disclosure of complex financial instruments by firms ". the heads of state and government have assigned an ultimate objective to accounting standard setters, i. e. the creation of a " single high - quality global standard ". it is striking that the attention given to accounting issues is linked to financial stability considerations. to conclude this address that has already been rather too lengthy, i should just like to remove any ambiguity that may have arisen from the discussions that have intensified with the crisis. i do not think that it is in anyone's interest in the current period to weaken accounting conventions. accurate, rigorous and fully transparent financial statements are the bedrock of financial activity. the aim of the work and discussions that have been actively pursued