But I also hope to share some lessons learned from when our institutions may have been on opposite sides of the table. I do not aim to break any new ground today. This is, after all, a luncheon. I am worried about your digestion. Instead, I want to offer some high-level reflections. I will then share with you a few of the questions that are on my mind. Let’s begin with some high level observations about the state of play in compliance. The role of compliance within supervised financial institutions has grown dramatically—in size, scope, and relevance. It’s the relevance of compliance that stands out to me. In day-to-day interactions with supervised financial firms, I sense that risk and compliance functions have grown in respect and stature across the financial services industry. That’s a good thing. I am further encouraged by what may be on the horizon for compliance. In the same way that social psychology has altered the fields of economics and other social sciences, compliance is beginning to learn from academic research about human behavior. 1 Again, this is a good thing. I am particularly fond of a description of one method, coined by Cass Sunstein and Richard Thaler: the “nudge.” I believe compliance will, in the near future, supplement an existing framework that restricts poor choices with new ways to encourage good choices. Here is a classic example of the type of change I have in mind.
Since the banks themselves have massive investments in this market, they were obliged to make writedowns which, in some cases, were hefty. There is still uncertainty about the volume of additional bank writedowns that will be needed, so that the situation on the international money markets remains tense. In this crisis, central banks have reacted fast and flexibly in order to secure the supply of liquidity to banks and counter distortions on the money market. By means of various measures, the Swiss National Bank was able to stabilise the three-month Libor within the target range, thereby keeping fluctuations in the relative restrictiveness of monetary policy low by comparison with other countries. However, it is not possible to solve the fundamental problems in the banking sector through the flexible deployment of an expanded range of monetary policy instruments; neither can they be resolved by means of coordinated actions on the part of central banks alone. The banks themselves must make a substantial contribution to solving the problems which triggered the current crisis. In this respect, the most urgent matters are transparency with regard to endangered positions and their valuation, increasing the capital base, and improving risk management and control systems. BIS Review 37/2008  1