While US deposit-taking institutions may continue to engage in market-making activities, European Union and UK proposals would make it necessary for some separation of these lines of business. And there are various legal formulas to ring-fence the different activities, ranging from mandatory total separation in the United States to the obligation to create financially independent subsidiaries within the same group in the proposal being discussed in the European Union. There are indeed doubts, which the Banco de España considers reasonable, about the advisability of implementing these initiatives, at least under their current design. First, interaction with the other regulatory processes under way should be carefully analysed. The objectives of the structural measures largely coincide with those of the FSB’s work on the treatment of systemic banks. Second, consideration should be given to the consistency of the reforms proposed at the international level. In this respect, the new structural reform measures should be prevented from introducing unwarranted differences in the treatment of similar activities. Accordingly, the debate on these types of measures should be global in scale rather than national or regional, possibly taking place within the framework of the FSB discussions. There is also a risk that divergences in structural reform models may lead to a greater fragmentation – or, if you will, to a certain re-nationalisation – of financial activity. 4  BIS central bankers’ speeches  Lastly, the possible implications of these measures for the structure of the financial system should be taken into account.

Following lengthy debate, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have issued two separate “expected loss” models, which are currently being deliberated on. There is one significant change: compared with the current “incurred loss” model, both opt for earlier recording of losses and accept considering estimated or expected losses. To calculate them, they include reasonable forecasts of economic conditions and future events. The discrepancy does not therefore lie in the amount of the estimated losses, but in the time at which they are recognised. The IASB proposal defers recognition of a portion of the losses to the time at which a significant impairment in the credit quality of the assets becomes apparent, whereas the FASB proposal limits banks’ discretionality, obliging them to recognise all the expected losses that may reasonably be estimated. At the Banco de España, we understand that, in principle, the latter proposal responds more closely to the requirement of the G20, which has expressed concern about the procyclical nature of the current regulations. Conclusions Allow me to conclude by highlighting the unprecedented effort being made in international coordination of financial regulations and the role of the Financial Stability Board and the Basel Committee. Throughout the crisis there have been signs of a re-nationalisation of financial markets, and some supervisors have, at specific times, adopted protectionist measures entailing little or no coordination with other supervisors. Admittedly, though, the bulk of the regulatory initiatives have come from the reinforced international cooperation led by the FSB.