A recent paper published by the ECB shows that a relatively small common deposit insurance fund – 0.8% of deposits covered – could suffice to withstand severe crisis situations such as that experienced between 2007 and 2009. Moreover, the existence of contributions – tailored to the risk profile of each bank – to a European common deposit insurance fund could ensure that there was no systematic crosssubsidisation between countries. They could, at the same time, guarantee that appropriate treatment was given to risks associated with sovereign debt holdings on banks’ balance sheets. In short, this third pillar would contribute to financial stability and would solve the problem of asymmetry that common supervision entails compared with the national banking systems’ ultimate responsibility for deposit insurance. None of the above necessarily means that any losses stemming from decisions taken prior to the launch of the SSM in 2014 will have to be shared. But if there is to be mutual trust, Europe’s leaders should decide to take joint responsibility for the banking risks assumed since single supervision came into force. Hence the importance of the measures taken by credit institutions to reduce their impaired asset volume, in addition to the direct positive impact of such measures on their profitability and efficiency. Towards pan-European banking It is essential that the public and institutional aspects of Banking Union are completed. However, to secure more stability for the euro area, it is also necessary to strengthen the private risk-mitigation and risk-sharing mechanisms I mentioned earlier.

[12] Although these advantages are not rooted in financial regulation, regulators have an important role  Page 5  to play in providing an environment that protects and enhances these advantages. We know, for example, that firms value predictable and consistent regulation. [13] So the first thing the PRA can do to facilitate competitiveness is to help maintain trust in the UK as a good place to do business. And it can do so by maintaining a regulatory regime that is open to international business, nondiscriminating, predictable, transparent, responsive to threats and opportunities, and which provides clear and accessible rules. One thing I want to make clear is that I don’t believe regulators should engage in risky compromises such as regulatory races to the bottom to win business. These compromises plant the seeds of future instability, as anyone who has studied the causes of financial crises will attest. There is no need for the UK make those compromises in pursuit of the underlying advantages and agglomeration effects I described earlier. This approach may possibly be suited to centres that are seeking to start from scratch or from modest beginnings, and do not have much to lose if these risky bets backfire. It is not suited to global financial centres that already enjoy and want to enhance their existing strengths. Rather, regulators can contribute to the success of UK financial services by maintaining a record of strong and predictable rules, openness to international business and alignment with international standards that they have a strong hand in influencing.