And the required adjustment still has a long way to run – few of the largest banks in the United Kingdom managed to reduce their leverage ratios through 2008, which remain at historically high levels. Third, interconnections between institutions create potential fragilities across the system, as we saw last September. Fourth, the risks associated with large-scale proprietary trading are probably harder to control in limited liability companies. So we need instruments to prevent the size, leverage, fragility and risk of the financial system from becoming too great. The resulting “macro-prudential” toolkit will contain a number of instruments to reduce risk, both across the system and over time. It must not be put together in a hurry. And I share the concerns of many of you that we are a long way from identifying precise regulatory interventions that would improve the functioning of markets. As far as individual banks are concerned, we face some uncomfortable choices about the structure and regulation of our banking sector. If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give.
Although the present economic environment looks quite favorable, these broader macroeconomic policy challenges make it even more important that we build on the substantial progress we have already made in strengthening risk management and the resilience of critical market infrastructure. Our success in meeting these challenges will help ensure that our financial system proves as resilient in the future as it has in the recent past. Thank you. 4  BIS Review 18/2004