The NSFR is a somewhat different calculation designed to incentivise banks to hold longermaturity funding: different liabilities are weighted together according to estimated maturity (reflecting, among other things, their degree of stickiness) and a minimum standard is applied. The NSFR was agreed internationally in the BCBS and announced in October 2014. All jurisdictions have committed to implement by January 2018. The EU is to make legislative proposals based on a report by the European Banking Authority (EBA) due in December 2015. Recovery and resolution, MREL, total loss absorbing capacity As described above, having sufficient capital to meet both anticipated and unexpected losses may still not be enough for a firm to continue trading. Part of the reform agenda is to put in place requirements for greater loss absorbing capacity such that, after a stress, a firm can be recapitalised sufficiently to continue to supply its critical economic functions. To deliver this, the firm’s management team needs to have put together a credible plan for recovery, to return the firm to a stable footing. And if even that is not enough, then we want firms to be easily wound down by the authorities i.e. for firms to be able to fail in an orderly fashion, with as close as possible a continuing provision of financial services, minimal spillovers to other firms and no public money involved. That process of managing the failure of a financial firm is what we call resolution. There are judgements to be made here about how much to rely on these different approaches.

An efficient securities clearing and settlement infrastructure is of fundamental importance to the integration and smooth functioning of financial markets. To this end, the Eurosystem supports the Commission’s intention to put forward a proposal for a directive on securities clearing and settlement. On the question of new regulatory initiatives, we share the view that asset management and retail financial services are areas where regulatory intervention could be considered. In the area of financial supervision, the Eurosystem fully supports the Commission’s view that the current institutional set-up should be exploited to the maximum extent before any potential structural change is considered. In particular, the Eurosystem agrees that the main policy objective in the area of financial supervision is two-fold: first, to enhance the competitiveness of EU financial markets and institutions and to facilitate the development of cross-border finance both in terms of institutions and in terms of products and services – the so-called financial integration angle; and second, to ensure the effectiveness of standards for oversight and supervision in a more integrated financial system – the so-called financial stability angle. In this respect, we attach particular importance to the consistent implementation of financial services legislation and the pursuit of supervisory convergence, as well as to the effective cooperation between home and host authorities. We are of the view that it is important that home-host coordination be developed on a robust and consistent basis for the financial groups involved in a way that both ensures effective supervision and reduces compliance costs.