##s, and in off - balance sheet activities has become evident. consequently, a rebalancing of risk and return is required to ensure resilient institutions and a resilient financial system. to achieve this, a strengthening of the risk control framework is needed so that our financial institutions are ready to face the challenges that lie ahead. such a framework needs to put risk management at the heart of the strategy and decision making processes of each institution. the framework should be supported by the twin pillars of risk analysis, that is a suite of statistical risk models to provide a measure of the different risks faced by the institution and a comprehensive stress testing programme which consists of a more judgemental and coherent risk analysis based on scenarios that the institutions may be facing in the future. i will leave you with a final reflection : although the global economy may show signs of recovery, many uncertainties remain. there is no room for complacency as new challenges will undoubtedly arise. we must act now to rigorously implement risk control frameworks so that we are prepared to face the next challenge from wherever that may come. thank you for your attention. bis central bankers ’ speeches

who believe that public backstops should remain a national responsibility. but for both institutional and economic reasons this cannot be the answer. given the reality of the banking union, it would make little sense for national governments to 3 / 7 bis central bankers'speeches individually backstop the financial sector without having the responsibility or tools for much of its supervision and resolution. moreover, as long as national authorities are responsible for bearing the costs of crises, they will be inclined to keep resources within their borders, or ring - fence them, which in turn will undermine cross - border financial integration. but also economically, the crisis demonstrated beyond a doubt how costly and difficult it is for national governments to manage banking crises that are ultimately international in origin and often beyond their control. pooling of resources at european level to deal with the failure of cross - border and of significant banks is much more efficient. both edis and the backstop for the srf would ultimately increase confidence and reduce the likelihood and the cost of a bank failure. risk reduction and risk sharing should thus not be seen as contradictions. they complement each other and should thus move forward in parallel, reinforcing each other so as to achieve the common aim of a resilient euro area. all in all, there cannot be a single “ risk reduction ” indicator which would prove that we are “ safe ” enough to complete the reforms of our monetary union. similarly, there should be no false expectations that edis and the srf backstop will firmly establish our economic and monetary union in all its dimensions. revamping the fiscal rules and creating stabilising instruments to enhance emu resilience private risk sharing through financial markets is essential to absorb shocks. but market - based adjustment cannot properly cope with large shocks, when the private sector as a whole contracts. in such a scenario, fiscal policies have to be activated to maintain stability, without over - burdening monetary policy. this, in turn, also ensures a stable macroeconomic environment for banks. there can be no question that the top priority in this area is for national policymakers to build up fiscal buffers to ensure policy space for future downturns, just as bank supervisors now expect banks to build up capital buffers in good times. this is particularly important in countries where government debt is high and for which full adherence to the stability and growth pact is critical for safeguarding sound fiscal positions. but europe has a role to play in reinforcing national fiscal policies. in contrast to the