prudential supervision. likewise, the group recommends establishing a european system of financial supervisors to strengthen micro - prudential supervision. i would like to express my support for a quantum leap with respect to financial supervision in europe, taking the de larosiere report as the starting point. recommendation esrc let me begin with their proposal for a european systemic risk council, a body that would be in charge of performing macro - prudential supervision, issuing risk warnings and giving recommendations on policy measures. while the idea of such a risk council is broadly welcomed, it also has encountered criticism. there have been comments on the council ’ s suggested mandate as well as on its institutional design. regarding the suggested mandate, there is the notion that the council should refrain from giving binding macro - prudential policy recommendations. while the key pillars of macroprudential supervision are regulation, financial supervision, and monetary and fiscal policy, the risk council itself has no responsibility for these tasks, nor any decision - making powers. however, what the risk council can and actually should realise is better macro - prudential analysis at the european level. it should communicate its findings to the competent bodies and monitor the follow up by the relevant authorities. let me now be a bit more specific. first, we have to come up with a clear definition of macro - prudential analysis. only when we have agreed on the definition of macro - prudential analysis can we determine the scope of the risk council ’ s mandate. ideally, the council ’ s mandate would be broad. after all, the areas determining system - wide risk are widespread. to be effective, macro - prudential analysis should not be limited to current risks but also examine the systemic impact of general developments in financial innovation, financial regulation and market design. moreover, the risk council should be able to identify how risks are distributed in the financial system, evolve over time and can be amplified within the financial system and by interactions between the financial system and the real economy. the risk council should therefore have access to the necessary information, although there are constraints to information - sharing. for instance, sharing firm - specific data could prove problematic. unfortunately, exactly this type of information is essential to macro - prudential supervisors. firm - specific data allows for better analysis of the magnitude and distribution of key risks and also provides insight into the inter - linkages between different financial institutions. so, in the interest of macroprudential analysis, we have to find a

and therewith reduce the risk for supervisory underlap and overlap. turning to global perspective so far i have discussed the challenges and trade - offs involved in transforming the supervisory structure in europe. while necessary, this is not a sufficient step and more needs to be done. the global nature of the crisis underlines that the financial stability of europe also depends on the quality of financial supervision outside europe. let me briefly raise just two key issues regarding international supervision that warrant further attention, without going into detail. scope of supervision the first issue is the scope of financial supervision, which should be broadened. key players in the international financial arena, such as credit rating agencies, hedge funds and credit counterparties, are not or only very lightly supervised. yet, the crisis has demonstrated that their activities could pose system - wide risks, either directly or by triggering excessive risktaking behaviour by financial institutions. some form of supervision of these institutions is therefore legitimate. but this task won ’ t be easy as some hurdles are hard to overcome. the european commission has taken steps to supervise credit rating agencies in europe. as i mentioned, it appears logical to license and supervise such agencies at the european level. however, given that credit rating agencies are globally active, a global approach may be even more effective. the proposals of the european commission constitute a first and necessary step towards global supervision of credit rating agencies in the years to come. with regard to hedge funds, it is beyond dispute that they may under certain circumstances have a destabilizing influence, although they did not trigger the present crisis. as indirect supervision of hedge funds, via their regulated counterparties, has proven less effective in limiting the risks these entities pose, direct and tighter supervision of hedge funds is needed. in this respect, the commission ’ s recent proposal on a regulatory and supervisory framework for hedge funds and other alternative investment managers can be welcomed. note however that supervision on hedge funds is complicated by the lack of an encompassing definition of hedge funds and the risk that these entities will move to places with a more hedge fund friendly regime. the first logical step is to register hedge funds, to force them to report on developments in core financial indictors and open positions in excess of certain thresholds and to subject hedge fund managers to a fit and proper test. the second issue concerns the need to improve the cooperation among supervisors. under the auspices of the g20 quite a few global colleges of supervisors have been established to foster international cooperation between supervisors. it is expected that