jean - claude trichet : laudatio for hans tietmeyer speech by mr jean - claude trichet, president of the european central bank ( ecb ), at munster city hall, westphalia, 26 march 2010. * * * lord mayor, mr hillebrandt, dear hans, ladies and gentlemen, it is a great pleasure to be here giving this speech in honour of my dear friend hans tietmeyer. the westfalen - initiative has made an excellent decision in inducting hans tietmeyer and freiherr vom stein ( 1757 – 1831 ) into the westfalische ehrengalerie [ westphalian gallery of honour ]. induction into the westfalische ehrengalerie is a means of honouring prominent westphalians for their services to the region. of course, the achievements of hans tietmeyer, like those of freiherr vom stein, can be seen far beyond westphalia. the historical significance of this city hall also extends way beyond westphalia. it has played host to pivotal events in the history of europe, having witnessed the negotiation and conclusion of the peace of westphalia more than 360 years ago. the treaty of munster and the treaty of osnabruck formed the basis for the establishment of peace in europe following the thirty years war. hans tietmeyer has also participated in pivotal events in europe ’ s history. indeed, he played a decisive role in laying the legal foundations for europe ’ s economic and monetary union. the introduction of the single currency represents the greatest achievement to date in the history of european integration – a process which has ensured six decades of peace and prosperity in europe. today, europe faces further pivotal decisions. the global financial crisis has resulted in major challenges for europe ’ s economic and fiscal policies. i will talk more about these issues at the end of my speech. i had the pleasure of spending many years working with hans – particularly between 1987 and 1999. initially, hans was secretary of state in the ministry of finance and i was director of the treasury. later, our periods as the governors of our respective central banks coincided. when the ecb was established, we both became members of the governing council of the ecb. it was hans who proposed not using members ’ countries of origin to determine the seating plan for the governing council ’ s meetings and instead using alphabetical order to decide who sits next to whom. after all, the members of the governing council are there to represent the euro area as

##y. to the extent this is done generally across those funds that are less transparent, have weak risk management disciplines and / or inadequate operational infrastructure, they will be able to take on less leverage, which would limit the potential risk they may pose in a disruptive event. as these points suggest, it is not enough to simply manage the firm ’ s direct potential future credit exposure to hedge funds within prudently low limits. this has to be complimented with a more exacting approach to the evaluation of a firm ’ s overall vulnerability to market risk that includes full consideration of the potential impact of a large shock, including one that involves hedge funds. alongside these enhancements to risk management practices, we believe that market participants should also intensify their efforts to improve the underlying infrastructure of the markets in which hedge funds are important. weaknesses in close - out procedures for otc derivatives were among the areas singled out by the crmpg for collective action in the wake of ltcm, and important progress has been made in this area since. in addition, there are potentially valuable efforts underway to standardize documentation and improve the confirmation and execution process in these markets. but looking forward, given the size of the otc derivatives markets and the participation of hedge funds in those markets, it is worth reflecting on whether central counterparty clearing arrangements for the more standardized portion of the otc derivatives market could play a useful role. certainly, there are many challenges associated with such a project, and its potential to mitigate risks effectively would have to be clearly demonstrated, but surely it is worth looking carefully at whether that or similar efforts could provide meaningful improvements to the core infrastructure of what is undoubtedly a systemically important set of markets. taken together, these areas of focus are important to ensure that there is adequate capital not just against growing direct exposures to hedge funds, but the indirect exposures that could affect market conditions and firms ’ positions in a more stressful environment. we believe that the dealers that act as major counterparties to hedge funds have a collective interest in improving market practice in these areas. this is a good time for them to reassess how practice has evolved against the standards set out by the crmpg in 1999, and to examine whether the bar established at that time is appropriate for the conditions that exist today. it took a major market event to expose the extent of weaknesses in market practice that prevailed prior to 1998 and to catalyze improvements across the financial community. those reforms have played an important