of a " run " – i. e. a situation where all policyholders simultaneously seek to redeem their savings at short notice – is virtually non - existent. let me emphasise that financial stability cannot merely be defined as the lack of " runs ". this is an essential precondition, but not sufficient in itself. as i have already said, the focus is on the functioning of the financial system, and in that respect confidence is of paramount importance. it is essential that pension savers trust the pension companies, i. e. that they feel confident that the money will be there when it is pay - out time. the best way to ensure that is for the assets of the pension companies to fluctuate in step with the liabilities when the economic assumptions change. " traffic lights " today, pension companies focus more on risk management and risk hedging than they did 5 - 10 years ago. the danish financial supervisory authority has prepared risk scenarios – known as traffic lights – which are " snapshots " used to test the robustness of the pension companies to negative market development. the principle behind the traffic lights is to visualise the pension companies'investment and insurance risks so that the pension companies have time to react to a changing risk scenario before it is too late. this has undoubtedly helped to make the danish pension sector more robust to financial and insurance risks. this has also been necessary in an increasingly more globalised world where external shocks are also reflected in the danish economy. the introduction of new, more complex financial products makes great demands on the pension sector, but also on the authorities. it is important that the boards and managements of the pension companies understand the underlying risks in relation to a given investment or liability. otherwise they may be in for a nasty shock one day. a case in point is the failure of ltcm in 1998. long - term capital management was a large us hedge fund specialising in building up large geared positions across several markets, financed via loans from numerous us and european financial institutions. ltcm sought to exploit imperfections in the market. the success of the strategy depended on a number of assumptions concerning the underlying market correlations and volatilities. however, with the nobel prize winners myron scholes and robert merton on board things could not go wrong! nevertheless, they did. the underlying assumptions proved not to be valid in the face of turbulent market conditions, and in 1998 ltcm folded after losing 4. 6 billion dollars in less than

and credit quality may deteriorate. not in one's own bank, but among competitors. the banks face the major task of incorporating the new international accounting standards and the forthcoming capital - adequacy rules – basel ii. this requires considerable resources. it is also an important task requiring each bank to assess its need for buffers against bad times. other parts of the financial sector have also devoted many resources to new legislation and its implementation. the european commission has now indicated that all major legislation is in place in the financial area. now we need to make the single market for financial services work. the imf is assessing the entire financial system in denmark as part of its financial sector assessment program – fsap. let us take this as a good opportunity for a service check. it is good to take a fresh look at whether we have an optimum structure in relation to international standards. the imf has just concluded a two - week visit to denmark. i would like to thank the members of the danish bankers association and a large number of the other players in the financial system for their efforts in connection with this visit. fsap is a long process and there is still considerable work ahead in the coming months. the imf's final assessment of denmark and its recommendations are expected to be presented in mid - 2006. bodil ( nyboe andersen ) has asked me to extent her gratitude for your fine cooperation – not only over the past year, but over many years. i hope this fine cooperation will continue in the years to come.