the last year but we do not yet have a conscious and fully - fledged view of how the financial sector will look in the years to come. much of the effort has gone so far into initiatives to address the short - term and medium - weaknesses in the system, but now we may be approaching the time when it will be appropriate to start thinking about reconstruction. to do so, however, we first have to see when and how reality eluded our or the market ’ s perceptions ahead of the crisis. first, the underlying reason why problems in us subprime loans led to the current broadbased macrofinancial crisis was the global nature of exposures to increasing risk aversion and deleveraging. risk is now priced and traded at the global level. over the years preceding the crisis, the overall price of risk fell significantly, and risky, illiquid positions were accumulated in many different national and international markets. when problems emerged in the specific category of us subprime, this started a process which ultimately led to a repricing of risk across all asset classes. as tim geithner noted when he delivered this lecture two years ago, this pattern is not a new one : in times of financial crisis, when investors cut risk - taking, they cut it everywhere, and the differing fundamentals of individual markets become irrelevant. second, many saw risks and leverage increasing, but an optimistic view that overestimated the true degree of risk dispersion and diversification in credit markets had become the conventional wisdom. in particular, even when it became apparent that credit standards had deteriorated, neither capital markets, nor bankers, nor regulators perceived the extent to which the risk exposures generated by securitisation stayed on bank balance sheets. also we collectively overestimated the ability of the system to absorb, rather than amplify, pressure for de - risking and deleveraging. on another front, it was only once the crisis was underway that the world seems to have discovered the risks inherent in business models that relied excessively on wholesale funding markets, both for specific institutions and for the system. and, given that these risks were misunderstood at the domestic level, all the more so was this the case at the international level, where firms, investors and regulators were farther from the markets where these bad risks were originated. one way to explain this collective blindness is to review those market developments that, in the years leading to the crisis, made both the regulators ’ and market ’

this massive intra - industry productivity differential dwarfs inter - industry differentials. for comparison, firms active in the tradable sector are on average around 50 % more productive than those producing mainly nontradables. how, then, can we improve the diffusion of innovation from the frontier to the laggard firms, especially within sectors? research suggests three main areas that will improve the capacity of, and incentives for, firms to adopt new technology : ( i ) investing in human capital and managerial ability, ( ii ) investment in intangibles, and ( iii ) improving economic dynamism. investment in human capital and management 5 / 9 bis central bankers'speeches first, there is now an extensive literature on the complementarities between technology and workforce skills, and on how better human capital increases the capacity to absorb technologies. 7 human capital includes not just formal education, but also on - the - job training and job security – firms with a large proportion of workers on temporary contracts underperform in terms of innovation. 8 managerial ability is also key for the adoption of technology. new technologies often require new structures and a reorganisation of production to maximise efficiency gains. while managerial quality is hard to quantify, the existing studies find a statistically strong correlation between a firm ’ s managerial quality and its total factor productivity. 9 one of the channels through which managerial practices enhance firm performance has been found to be the increased capability of firms to absorb new technologies. 10 certainly there is potential to improve education systems in the euro area and thereby to give greater numbers of graduates the necessary technical and scientific skills. our co - hosts today, mit, came top of the latest qs world university rankings. there are nine uk universities and two swiss universities in the top 50 of those rankings, but only one euro area university. 11 and education is not just for the young. improving the provision of life - long learning and retraining programmes will aid the flow of skilled labour towards more productive businesses. investment in intangibles second, numerous studies have shown that firms which invest more in intangibles are in a better position to understand and benefit from new technologies. 12 such investment includes conducting their own r & d and developing their own intellectual property, as well as investment in branding, software and databases. investment in intangibles also appears low in the euro area compared with a number of other advanced economies, although it has been on an upward trend. the aggregate number also masks a wide country