However while such measures have removed near-term uncertainty, they could prove insufficient to provide a lasting change in the negative sentiment of investors on the mediumterm if budget deficits and debt situation are not considerably improved. In this context, European authorities have to show their strong level of cooperation and commitments to global and common solutions. Any unilateral and uncoordinated decision may notably prove to be less efficient and may amplify markets volatility. Finally, the removal of vulnerabilities in the banking sector is desirable to alleviate uncertainties. Effective risk management, transparency and robust business models are essential to strengthen banks’ resilience to shocks and to ensure adequate funding of real economy that underpins sustainable growth and financial stability. The effective and timely implementation of the G20 policy orientations is necessary to build the new international system on a solid and stable ground. This is notably the case for the G 20 provisions on the CDS market and on credit rating agencies. One cannot deny that certain OTC derivatives (CDS for instance) or certain types of transactions (short sales) are likely to exacerbate price movements or create instability that are detrimental to both issuers and investors. One may thus find it tempting to ban or drastically limit this type of operations and we indeed have observed national proposals going in that direction, including the bank of naked CDS, naked short sales or mandatory shorter time horizon for settling transactions. I am of the view that such measures may not be efficient and, worse, may be counterproductive.

In the case of sovereign CDS, the issue is not necessarily with buyers who ultimately carry limited risks but with sellers. In fact we probably need a specific supervision of credit protection sellers. Regarding credit rating agencies, the agreement on strengthening the regulatory oversight is becoming a reality with the implementation of the agreed European framework, which will give a pivotal role to the European Securities Market Authority. At the same time there is a need to reduce the dependency on credit rating agencies for regulatory purposes, both in prudential regulation and as eligibility criteria for central bank refinancing. ******************************** Let me now conclude briefly. We are still going through very challenging times. The European banking system seemed to have recovered partly thanks to central banks and governments policies supporting the banking sector. This return to profitability should be used to comfort capital positions in those firms, in views of the various risks I have rapidly discussed. Recent renewed strains on financial markets especially sovereign markets and the subsequent impact on the banking sector show us that the crisis is not fully behind us and those central banks actions are more than necessary to accompany the redefinition of the banking sector, the well-functioning of markets and the return to a self-sustainable recovery. So far, the measures taken by the Eurosystem to stabilize markets and restore their functioning, as well as the establishment of the European Financial Stabilization Facility, have lowered tail and contagion risks.