jose manuel gonzalez - paramo : risk, return, resilience – the future financial system speech by mr jose manuel gonzalez - paramo, member of the executive board of the european central bank, at the 3rd annual risk and return russia conference, moscow, 14 april 2011. * 1. * * introduction ladies and gentlemen, as the crisis is still unfolding, we cannot tell with certainty how our economic and financial systems will function in the future. unfortunately, based on past experience, we can safely predict that individual banks, and the financial system as a whole, will face new challenges, and even crises. we, as risk managers, have the weighty responsibility of ensuring that our institutions are prepared to weather these financial storms. our role is not to eliminate the risk faced by an institution – this would not be possible or even desirable. in order to create resilient institutions, our role must be to act as guardians of the balance between risk and return. to do this, we must learn lessons from history ; however, we should not be blinkered by history – we must use our knowledge of the past, combined with our intellect and our imagination, to anticipate and design appropriate responses for the challenges of the future. in response to the crisis, a new risk control framework is evolving in many of our institutions. this framework puts risk management at the core of the decision - making process. today, based on lessons learned from the crisis, i would like to highlight some of the principles which should guide the development of this new approach. moreover, since this framework will require powerful quantitative and judgemental based tools to guide decision - making, i would like to highlight the importance of taking a twin pillar approach so that the risk to which an institution is exposed is recognised and controlled – here, i am referring to the twin pillars of statistical risk models and stress testing. although today i will focus on the framework being developed by institutions in the private sector, i would like to point out that many of the guiding principles as well as the quantitative and judgemental based tools are equally relevant in public institutions such as central banks. 2. the importance of the financial system1 before considering this new framework in more detail, let me first emphasise that the role of institutional risk managers and institutional - specific risk control frameworks is more significant than simply protecting an individual institution from failure : the concerted efforts of risk managers, regulators and central bankers can – and indeed must – ensure the resilience of

rate for ultra - orthodox women is very similar to the general average. in contrast, employments rates for men are particularly low. over time, we can see a sharp increase in employment among ultra - orthodox women, but we cannot distinguish such a trend among ultra - orthodox men. this is also obviously a result of education trends – the rate of higher education among the ultra - orthodox population is particularly low, and we cannot distinguish a higher rate of those holding an academic degree among the younger population, which is certainly a worrying phenomenon. we can see that among the ultra - orthodox students, there is a focus on professions such as business management and law, and that among women there is also a focus on therapeutic professions. over time, we do not see growth in the rate of those with higher education among ultra - orthodox men. there is no doubt that the way to integrate successfully in the labor market is to obtain an academic education. we can see that those holding degrees enjoy much higher rates of employment, and much higher wage levels, than those who do not hold such a degree. there is broad agreement regarding the policy measures required in order to increase education and employment rates among the ultra - orthodox sector. these need to be implemented : • it is important that the education system provide an infrastructure that will assist in obtaining a higher education later in life. • the variety of higher education fields must be expanded so that it boosts broad and variegated integration in the labor market. • it is important to adapt the professional training program to the needs of the labor market, while relating to various population groups. investment in professional training in israel is relatively low, and it is important to expand it among the general population, not just in the ultra - orthodox sector. • an expansion of the active labor market policy is required. • it is important that employers be ready to absorb employees from all sectors and population groups. employers who are open to taking on employees from the sectors with which they are less familiar will enjoy a broader variety of manpower that is available to them. these policy tools can provide the opportunity. in the end, it is the individual that needs to take that opportunity. as such, i am very happy to say these things here, before a group of students that have chosen to obtain an academic education and make the required effort to successfully integrate in the israeli labor market. bis central bankers ’ speeches