with less capacity to absorb losses as risks materialised. to safeguard financial stability, compensation schemes in the financial sector must be better aligned with the long - term performance of firms and with prudent risk - taking. international guidelines to this effect have been developed by the financial stability board. to date, the implementation of these guidelines is still seeing good progress. but much work still lies ahead for national authorities and banks. they have to ensure effective implementation of sound compensation policies that lead to more prudent risk - taking behaviour of employees. the strong compensation requirements that europe has set in the legislative package on capital requirements are an important step in this direction. but achieving lasting change in behaviour and culture will take time and stamina. banks need to undertake further efforts to publicly disclose easy - to - understand and consistent data on their compensation structures that allow for comparisons across jurisdictions. looking beyond the individual bank to sum up the characteristics of resilient banks, we can state that they are well - capitalised and have enough liquidity, that they have profitable and sustainable business models and that they are managed prudently. first and foremost, it is certainly the banks ’ responsibility to fulfil these criteria. it is the responsibility of regulators, however, to put in place a stable regulatory framework. nevertheless, in designing such a framework they have to look beyond the individual bank. experience over recent years has shown that certain dynamics can jeopardise the entire financial system even though all single entities were believed to be sound : the whole is more than the sum of its parts. therefore, setting regulatory standards to increase the resilience of individual banks is necessary but by no means sufficient. authorities have to broaden their perspective to cover the financial system as a whole. they have to take into account the problem of systemic risk. systemic risk can be created by cyclical or structural developments, such as exposure concentrations or externalities caused by the interconnectedness of financial institutions. 3. 1 the “ too - big - to - fail ” - problem the first step in this regard is to acknowledge that even resilient banks can fail. and this might become a problem if the failing bank is very large and interconnected. in such a case it can drag other banks down with it and cause a systemic crisis. consequently, we have to ensure that such systemically important financial institutions ( or sifis ) can fail without destabilising the whole financial system. what we need are insolvency

janet l yellen : fiscal responsibility and global rebalancing speech by ms janet l yellen, vice chair of the board of governors of the federal reserve system, at the committee for economic development 2010 international counterparts conference, new york, 1 december 2010. * * * good morning. thank you for inviting me to be with you today. the committee for economic development has a long and distinguished record in identifying and addressing crucial issues related to our nation ’ s economic growth and productivity. and today ’ s conference on fiscal sustainability and the global economy fits squarely within that tradition. my remarks will focus on the challenges faced by u. s. policymakers as they confront the need to put fiscal policy on a sustainable track in the long term while providing support to the economy in the near term. i will also offer some thoughts on the recent actions undertaken by the federal reserve and on the implications of our nation ’ s fiscal and monetary policy choices for the global economy. 1 the challenge of achieving fiscal sustainability in the united states charting a sensible course for the federal budget is an essential but formidable task for u. s. policymakers. since the onset of the recent recession and financial crisis, the federal budget deficit has soared as the weak economy has depressed revenues and pushed up expenditures and as necessary policy actions have been taken to help ease the recession and shore up the financial system. at 9 percent of gross domestic product ( gdp ), the budget deficit in fiscal year 2010 was a little lower than it had been a year earlier, but it was still considerably above the average of 2 percent of gdp during the pre - crisis period from fiscal 2005 to 2007. as a result of the recent deficits, federal debt held by the public has increased to around 60 percent of gdp – a level not seen in 60 years. for now, the budget deficit seems to have topped out. so long as the economy and financial markets continue to recover, the deficit should narrow relative to gdp over the next few years as a growing economy boosts revenues and reduces safety - net expenditures and as the policies put in place to provide economic stimulus and promote financial stability wind down. that said, the budget situation over the longer run presents some very difficult challenges, in part because the aging of the u. s. population implies a sizable and sustained increase in the share of the population receiving benefits from social security, medicare, and medicaid. currently, there are about five individuals between the ages of 20 and 64 for each person aged 65