Our aim should be to produce a system more immune to the perverse incentives that we have seen, where leverage is lower, and where the sources of leverage and their associated risks are better identified and addressed. Regulatory and supervisory changes will need to  BIS Review 102/2008  1  go hand-in-hand with enhanced transparency about risk exposures and valuations throughout the system.
Let me start with actions to improve incentives. Under the umbrella of the FSF, and in a collaborative effort of national and international regulatory and supervisory authorities, we urged prompt implementation of Basel II, which will align capital requirements more closely to banks’ risks (and I will have more to say about this in a moment).