Before elaborating on the risks emanating from the interaction of the three aforementioned factors, it might be worth recalling how the ECB saw the situation six months ago, before the financial market turmoil gathered pace. In this context, let me refer to some pertinent quotes and conclusions included in the June 2007 FSR (see slide 4).
Before I do so, it is important that we understand the relative roles of regulators and bank management in avoiding excesses and managing risks appropriately. As you all know, the regulatory and supervisory focus has shifted in recent years from quantitative controls and explicit rules to monitoring bank soundness through the quality of internal controls and the banks’ risk management culture.