time, and since then has initiated a turnaround in the business model of the bank. before that, vikram had a long successful career in other financial institutions, including morgan stanley and citi itself. alessandro profumo has been ceo of unicredit group since it was founded in 1997. unicredit group can probably be qualified as the quintessential european cross - border banking group, with operations in 22 european countries and, amongst these 22, in 19 central and eastern european countries. alessandro is also the president of the european banking association. the last 2 to 3 years have been especially eventful for financial integration and stability, with once in a life - time developments. after lehman brothers filed for bankruptcy in september 2008, the global financial system experienced unprecedented stress and policy makers had to tread unknown territory in dealing with it. the financial crisis has raised a host of policy issues that will provide food for reflection for generations to come. i will mention a few of them to set the scene and to kick - start the discussion. the first set of issues relate to the developments in the late nineties and early 2000s. the combination of high economic growth, ample liquidity, increasing financial integration and development, and “ light handed ” regulation sewed the seeds of the crisis to come. i believe that a number of people and organisations, including mine, identified vulnerabilities in the financial system before the crisis erupted. nevertheless, we did not anticipate the timing and the intensity. we should ask ourselves what we missed in the run - up to the crisis and what the lessons are for the future. once the crisis erupted in full force, a first casualty were the money markets, which provide the oil to make the banking system run smoothly. money markets came to an unprecedented stand - still. because they are so closely linked to monetary policy, they had shown signs of almost full integration right after the introduction of the euro. but with the crisis, a degree of re - segmentation took place again along national borders ; and the eurosystem had to step in to take on the intermediation role that these markets play in normal times. another set of issues relate to banking. banks expanded both across borders and financial sectors, often combing commercial banking, investment banking and insurance business in one and the same group. the two groups whose ceos are in the panel are clear examples of this evolution. but cross - border integration of rules and prudentials, including the

severe. many hope that reinvigorated financial services regulation can provide at least a partial antidote to the adverse consequences of unfettered markets. but it has to be the right sort of regulation. patrick honohan summarised past problems acutely when he said, “.. the style of supervision adopted did not generate the most relevant or useful information to anything near the extent required. by relying excessively on a regulatory philosophy that emphasises process over outcomes, supervisory practice focused on verifying governance and risk management models rather than attempting an independent assessment of risk, whether on a line - by - line or whole - of - institution basis. this approach involved a degree of complacency about the likely performance of well - governed banks that proved unwarranted. ” it is in the light of these failings that we have to strengthen supervision. market failures can happen in many different ways and have many different consequences. we cannot avoid all failures but we can prioritise our supervision so as to protect against the potential failures bis central bankers ’ speeches that would have the most severe consequences. we believe, against the backdrop of the problems of both firms and regulators in the recent past, that prism offers an important step forward towards more challenging and outcome focused supervision : that is supervision where real problems are identified earlier and where serious efforts are made to mitigate them before the problems morph into crises. it should help us deploy our finite means to deliver better ends. introducing prism over the early part of this year much attention was paid to the bank recapitalisation exercise carried out by the central bank. that was about resolving past failings and putting our banks on more stable footing, to ensure they were sufficiently capitalised to deal with the consequences of the financial and economic crisis. it was about dealing with issues which had, in the jargon, crystallised. while that was happening, we were also busy developing a system of supervision aimed at providing better protection for the taxpayer and the financial system against such significant losses and costs in the future. in an ideal world, a financial regulator would identify and deal promptly with issues at major firms – issues which had a significant chance of causing losses to taxpayers. in that ideal world, the regulator would deal with these issues before they crystallised, that is to say, early enough to avoid the losses actually happening. to be able to do this, the regulator needs to be forward looking and to build a good understanding of these key firms