In my opinion, there were essentially four such shortcomings: i) the markedly excessive size of the financial sector, which took the form of an accelerated expansion in lending in a low interest rate setting, ii) excessive exposure to the real estate sector, which underwent an BIS central bankers’ speeches  1  unsustainable boom, iii) an insufficient own funds base to meet the risks assumed, and iv), lastly, appreciable weaknesses in corporate governance, management and risk control systems in a relevant segment of the sector. The reforms since undertaken should indeed be understood as a set of actions whose aim was to redress these singular weaknesses of our financial system. 3. The measures taken  What was done to combat these shortcomings? I believe the measures taken may be grouped into four central issues. i)  Balance sheet clean-up  Firstly, it was necessary to facilitate the clean-up of bank balance sheets and, in particular, to reduce exposure to the real estate sector, which was weighing on banks’ solvency. This was mainly achieved through two types of measures. On one hand, further to two decree-laws and various supervisory initiatives, the already-demanding provisioning requirements were increased, particularly for the most sensitive exposures. And on the other, Sareb (the asset management company for assets arising from bank restructuring) was created, and all banks that received public assistance were obliged to transfer their real estate assets, whether impaired or not, to this company.
None are perfect but all are independent of the internal model, and therefore can help provide us with a different view on the evolution of risk exposures and a safeguard against model drift. All risk measures have their limitations. So we plan to use a range of measures alongside other supervisory review process initiatives, such as the analysis of internal model outputs. Conclusion In conclusion, given today’s audience, I want to stress the critical professional role of actuaries in current soft market conditions, where there may be a greater tension between on the one hand underwriting discipline and appropriate reserving and on the other hand business growth and current-year profits. Actuaries are responsible for providing assurance on reserves and opinions on both the underwriting and reinsurance strategies of firms, implying strong engagement with the risk function, as well as independence and objectivity in their assessments. Events like today’s, where actuaries come together to share knowledge, with the aim of raising professional standards, are particularly important and welcome. Chart 1  4  BIS central bankers’ speeches  Chart 2  BIS central bankers’ speeches  5