Those models, measures and opinions are still valid tools, but need to be used in a correct manner, and need to be complemented by other tools and, more generally, by expert judgement. Risk managers should not simply take comfort in recent historical regularities and in wellestablished standards for risk measurement. Discomfort should be their habitat. All business areas of the institution should contribute and challenge the risk management function to look at risks in a different manner and to adopt better communication strategies. We have recently lived through many “what-ifs” that almost nobody thought of, and although risk management is all about dealing with uncertainty rather than making point forecasts, our warm and placid financial models, fed with short-sighted inputs, were not capable of adequately capturing the risks that ended up materialising. In hindsight it seems unbelievable that we believed in models that were predicting that nothing terrible could happen in 99 out of 100 years, usually using less than 10 years of data to construct such prediction. In the last 100 years, not counting the recent crisis, we have experienced 2 world wars, the Great Depression and an increasingly frequent number of financial crises affecting specific sectors and regions that have often been a source of contagion. It does not take a statistician to prove that the models were fundamentally misused. It just takes common sense, but as the saying goes, this may be the least common of the senses.
I will then discuss how the risk management function needs to be adjusted to the new economic and financial environment. Finally, I will quickly describe some of the challenges ahead for central banks as risk managers. 2. Lessons from the financial crisis  So let me start by referring to some of the key lessons from the financial crisis. From the selection of topics for this conference, with its focus on innovations in risk management and reforms to the regulatory frameworks, it is clear that we have learned very valuable lessons from the crisis. However, the fact that we are drawing lessons from the crisis is not only illustrated by the novelty of the issues under discussion, but also by the different approaches taken to examine topics that were regularly discussed in Risk and Return conferences in pre-crisis times. As examples of topics that were “usual suspects” in past conferences, but are now presented in a different manner, let me mention two specific issues: (1) the broadening of investment universes, and (2) the advantages in terms of yield pick-up of investing in new markets and asset classes. In the past the analysis on these issues would have typically concentrated on the return aspects and portfolio management considerations, with only limited space for risk-related considerations in the exposition, the latter usually consisting of some simple references to the tracking error of certain assets against the benchmark portfolios.