Unlike any of the ratios we are used to handling, there is no minimum level of governance that banks should reach. Governance is a means of doing things and a culture. And attaining it is an objective that takes some time to be implemented. All this makes it difficult to transmit a sense of urgency. Yet without proper governance, the conflicts of interests that arise daily at banks cannot be managed. When a conflict of interest arises, the bank must create a control function. Evidently, the control function will only work if it is independent and strong; otherwise, it will be neutralised or absorbed by the pressure of daily business. We have seen how, without proper governance, control functions are lacking in weight and effective power. This gives business units excessive influence and even, occasionally, exclusive influence over day-to-day bank management. Ultimately, then, it is governance that allows banks to manage the conflict in question which arises between the search for short-term profit and the bank’s sustainability and viability in the long-run. 9/13  Regrettably, we have seen how, as the crisis was brewing, a good number of banks behaved just as Keynes had predicted they would. Others, in contrast, decided not to emulate their competitors or to do so to a much lesser extent. I believe the quality of governance structures had much to do with this uneven behaviour. But there is always room for improvement.
The problem, of course, is one of terms: the long-term business sustainability objective clashes with other short-term objectives, in particular the search for swift profit, under the pressure occasionally of shareholders. Changes in bank regulation, management and supervision Keynes once criticised those unprofessional bankers who imitate the short-term strategies of their rivals only to hide behind the behaviour of the sector as a whole as justification for their own mistaken decisions.2 Unfortunately, the crisis suggests Keynes may have been right. Though not so in all instances, the search for short-term profit may lead to the pursuit of risky strategies, despite the fact that this may compromise the bank’s future in the medium and long term. We have also seen that, if a large number of banks coincides in a mistaken strategy, entailing future problems, the problem ceases to be an individual one and become systemic, and individual responsibility is diluted. I appreciate that the question we must ask ourselves here is what we have changed in attempting to correct this type of behaviour. Or, expressed otherwise, why should this time be different? Regulatory changes Firstly, deep-seated changes have been made to the regulations applicable to banks. The biggest revolution is in the Basel capital framework, which has been reformulated in its virtual entirety so as to incorporate the lessons from the crisis. The changes are far-reaching, and describing them would alone take up the rest of my address today.