It is true that some countries have expressed doubts as to the legal basis of the proposal. Moreover, this initiative may possibly assign excessive protagonism to the EC in some cases. Nevertheless, it is important that a political agreement be reached rapidly, allowing the creation of a scheme which will contribute not only to remedying the current fragmentation of the bank instrument market in Europe, but also, as I mentioned earlier, to the effectiveness of the single supervisory mechanism. Structural measures Finally, the third pillar of global regulatory reform I wish to briefly inform you of is the measures aimed at restricting the business model of financial institutions. Here I refer to the Volcker rule in the United States, to the conclusions of the report drafted by an independent commission chaired by John Vickers in the United Kingdom and to the proposals in the European Union by a group of experts chaired by the governor of the Bank of Finland, Erkki Liikaanen. The rationale of these reforms leaves little room, conceptually speaking, for discussion. In the years leading up to the crisis, banks devoted a substantial amount of funds to proprietary trading and own-account investment activities which notably increased the size and complexity of their balance sheets. This expansion of business may be partly related to the ease with which banks can access funds in a setting in which, as I described earlier, bank liabilities (and particularly the most traditional type, such as deposits) enjoy a kind of implicit public guarantee.

In short, I think that the regulatory system was not conducive to adequately measuring the significant risks taken by institutions; to providing the necessary incentives for controlling them; to ensuring sufficient capacity for absorbing losses when they materialised; and, finally, to avoiding contagion to the sector and to the economic system as a whole with the subsequent adverse consequences on public finances, growth and unemployment. In response to these deficiencies, the main international authorities have agreed and, in some cases, already implemented important reforms affecting nearly all significant aspects of financial activity. Allow me today to focus on what I consider are the three pillars of global regulatory reform of the credit sector: first, measures to strengthen the solvency of banks; second, reforms to facilitate the orderly resolution of non-viable institutions; and, finally, the structural measures to set limits on credit institutions’ business model. BIS central bankers’ speeches  1  Solvency legislation Let us begin with the solvency rules. The new solvency rules, known as Basel III, introduce significant changes in prudential requirements which envisage not only an increase in the amount and quality of capital required, but also supplementary prudential oversight aimed at strengthening the resilience of banks and the financial system as a whole. This new framework has been incorporated, as you know, into European legislation through the Capital Requirements Directive and Regulation which will be implemented on 1 January 2014. Basel III includes far-reaching changes. First, it requires banks to considerably increase their loss-absorbing capacity.