##s to a unified assessment scheme. the asset quality review has given us a deeper insight into the banks ’ bis central bankers ’ speeches procedures, thereby making it possible for us to check which differences between banks are justified and to ascertain where we need to probe critically. we will use the knowledge that we have obtained through the peer group review for other supervisory activities as of 4 november. thus far, these processes have been carried out at the national level. we are now going to harmonise them throughout the euro area, thereby making it easier to compare the respective risk situations of banks, thus enabling us to target our supervisory activities better. federal structure – central decision - making critical voices have warned us in the past about losing sight of the diversity of the european banking sector and wanting to typify a “ european ” bank. i admit that, in the process of harmonising and centralising decision - making powers, there is always also a danger of seeing everything at par. the ecb is, however, protected from such developments by institutional barriers. as national supervisory authorities participate in the supervisory process, the ecb remains close to regional market and banking structures. moreover, the ecb ’ s staff will take a keen look at the business models and risk profiles of each directly supervised bank. the kick - off meetings, which have been taking place since early summer between the current supervisors, the ecb and the banks, are simply a first step. in this connection, allow me to stress the inherent dangers in supervision not only of being too far removed, but also of being too close. other viewpoints and new supervisory approaches and methods may sharpen our perception and mitigate the danger of accepting a bank ’ s unjustified customs merely because they have long been familiar to us. the comparisons and analyses i referred to earlier will also help to counter this danger. but that is not all. we will also address this issue in terms of our staffing policies. the head of a joint supervisory team ( jst ) must come from a different country to the country in which the institution it is supervising is established. in concrete terms : the head supervisor for deutsche bank will be a french lady ; bnp paribas will be supervised by an italian man. in addition, there will a rotation of staff members among the jsts. all in all, this will not only enable us to reach more objective judgements about a bank, but will also foster the development of a common supervisory culture. banking

this year, it is difficult to assess its effectiveness comprehensively. however, it could be instructive to review ex ante the robustness of the analytical toolbox assigned to the esrb, and consider ex post whether such a toolbox would have enhanced policymakers understanding of systemic risk prior to the crisis. before doing so, i should make clear that the purpose of the esrb is not to predict crises. the academic literature on early warning signal models, developed over the years, suggests that, for a number of reasons, the scope for error in predicting crises is substantial. either the eruption of a crisis is missed or a period is wrongly identified by the start of a crisis. for this reason, the esrb ’ s analytical toolbox is based on early warning models and indicators designed to identify emerging vulnerabilities or imbalances that could lead to financial instability. these models aim to perform three functions in particular. first, to identify the variables which are associated with financial instability. to this end, an index of aggregate macro - financial imbalances, or of institution - specific vulnerabilities, is tested against variables such as credit growth, property price changes, private sector leverage and current account deficits, to discover which variables predict that index. measures of bank leverage, balance sheet growth and maturity mismatches may also be used in order to gauge the extent to which the financial sector is driving developments. second, to assess the relative importance of different risks for financial stability. this is done using “ adverse scenarios ” that are designed and macro stress - tested to establish the potential severity of different types of risk and the overall resilience of the financial system to severe shocks. such models, including top - down stress test of individual institutions, allow risks to be assessed more broadly and at a higher frequency than is possible with bottom - up exercises run by financial institutions, thus enhancing the “ real time ” information on systemic risk available to policymakers. third, to assess the financial channels through which risk can be propagated, thereby factoring - in potential second - round effects. the use of contagion and spillover models allows, for example, the assessment of the impact on the financial system of the failure of a particular financial institution or of turbulence in a particular sovereign debt market. bis central bankers ’ speeches we could consider how this framework would have functioned if applied retrospectively. for example, the monitoring of the credit - to - gdp ratio as an early warning