we can strengthen the supervision around stress testing going forward. conclusion in conclusion, the basel committee is focusing on practical and concrete efforts that will help strengthen risk management, regulation, supervision, market transparency for banking institutions. we have embarked on a focused and ambitious work agenda with clear deliverables. we also are contributing to the broader initiative of the financial stability forum to address the issues resulting from the recent turmoil. some of the committee ’ s efforts will take time, but having a clear road map should improve market confidence even in the shorter term. the banking sector needs to have sufficient capital and liquidity buffers to absorb financial shocks and the uncertainties around how such shocks could play out in the future as the process of financial innovation continues. risk managers need to continuously translate the basics of sound risk governance and management to rapidly changing environments. and importantly, regulators need to make sure that the infrastructure of supervision, regulation and transparency keeps pace with innovation and promotes appropriate incentives for sound risk management. there are no simple, quick fix measures that will prevent the next crisis. but i believe that the steps i have outlined will make the banking sector more resilient to the next set of shocks, whatever their source. thank you.

market share, combined with unrealistic expectations about growth and performance prospects. but no matter how much risk exposures get sliced, diced and distributed among financial market participants, financial innovation cannot mask poor underwriting. at the same time, the additional complexity, opacity and leverage resulting from certain structured products and offbalance sheet vehicles further magnified the problem, as it has not been sufficiently clear where the ultimate risk lies. this brings me to my second point. risk management infrastructure and financial innovation indeed, the second fundamental shortcoming is the wide disparity between the rapid pace of financial innovation and the risk management infrastructure on which this innovation was built. when i spoke at last year ’ s garp conference, i noted that the linkages between the various segments of the credit markets and financial institutions had been fundamentally altered. this is mainly due to increased market - based credit intermediation, or the originateto - distribute model. historic or statistical measures of risk and exposure, such as value - at - risk, past loss experiences and name concentration in the traditional banking book have proved inadequate when assessing relationships in the originate - to - distribute model and how they may perform under stress. in fact, the use of these and other historic measures resulted in a massive understatement of stressed losses, which were far below the actual losses experienced to date. as i suggested at last year ’ s conference, the greater reliance on securitisation and other risk transfer mechanisms means that banks are more vulnerable to exposures building up or returning to the balance sheet when market liquidity seizes up. in addition, increased reliance on market liquidity means that problems in financial markets can adversely – and very quickly – affect banks ’ funding liquidity. however, for those institutions that stress test funding capabilities, many only assumed a firm - specific event. the problems arising from poor underwriting were compounded by failures to manage firmwide concentrations. many firms were unaware of their overall exposure to subprime mortgages and related structured products, such as cdos, whose repayment depend on such mortgages. these concentrations went far beyond traditional loan portfolio exposures and included cdos and mortgage - backed securities held in the trading book ; liquidity facilities extended to conduits ; reputational exposures to sponsored sivs ; and counterparty exposures to the monoline sector. in addition to failing to understand their firm - wide concentrations, many institutions could not readily nor easily aggregate their subprime exposure