Meanwhile, but sometimes with lags, the French capital account was liberalised. We switched from a situation, in 1983, where the exchange rate controls were at their tightest, following speculative attacks and three devaluations in 18 months, to a gradual removal of these controls beginning in 1984 and completed in 1990. Trade-related operations were gradually liberalised, followed by most financial transactions and, finally, residents were allowed to freely open foreign currency accounts and French banks to lend French francs to non–residents. 2  BIS Review 64/2007  Of course, the Indian experience differs from the French one as there is no "one-size-fits-all" transition process. And I would be very interested in listening to your views on this. 2. But before, let me remind you that, to be successful, it is not sufficient to improve the financial system: shaping appropriate institutions and economic policies is of the essence  The need to set in place strong institutions should never be underestimated. A G20 work entitled "Institution building in the financial sector" (in which both India and France participated) stressed the importance of solid institutions along with deep and sophisticated financial markets as key elements to maximise the benefits of globalisation and reduce the risks of financial crises. An appropriate institutional framework includes among others a well functioning legal system, a reliable payment system, a proper framework for regulation and supervision, an appropriate deposit insurance scheme, and propitious conditions for implementing new developments in information and communication technology.
Should the general economic situation indeed deteriorate further, the solvency of borrowers would also worsen. This would result in losses in the big banks’ lending portfolios. The effect on banks with a domestic business focus would depend on the extent of the deterioration in the international environment. Entering into risk is a bank’s core business and, as such, is desirable. What is important is that these risks can be both calculated and carried. However, experience shows that is not always the case. In each of the three most recent international financial crises, a Swiss big bank was particularly hard hit. Each time a crisis occurred an increasing amount of equity was wiped out. This should serve as a warning. If the wheels are not set in motion now, the impact of the next crisis could be even more severe. Should a big bank collapse, the consequences for Switzerland would be dire. Therefore, measures need to be taken now in order to ensure that the Swiss big banks are sufficiently  BIS Review 80/2008  1  resilient in the future. The SNB and the Swiss Federal Banking Commission recognise a need for action in – basically – four areas: capital, liquidity, monitoring and crisis management. In our stability report we discuss measures in all four areas. Today I would like to focus on the most important measures in the area of capital. It is in the nature of the financial markets that there will always be crises.