BIS central bankers’ speeches  Governance  Reform  5  G20 rapidly identified some of the key areas for reforms and entrusted the task of drawing up concrete proposals to the Basel Committee on Banking Supervision and the Financial Stability Board. Some progress has already been made in the area of financial market regulation, most notably as regards the “Basel III” capital accord. This calls for strong increases in the capital requirements of financial institutions and also introduces leverage requirements, as well as leverage ratios. In Europe, important steps have been taken with a view to addressing the long-standing friction between, on the one hand, the international dimension of the operations of commercial banks and financial institutions, and, on the other hand, the national boundaries that constrain regulatory and supervisory measures. The Heads of State or Government of the EU have agreed on a new structure for financial supervision in the European Union – the European System of Financial Supervision – with a view to improving coordination and cooperation.   As regards micro-prudential supervision, three newly established European Supervisory Authorities for banks, insurance companies and financial markets became operational at the beginning of 2011. These are designed to enhance coordination between micro prudential supervisors and to ensure the application of EU wide standards in the area of technical supervision.   In addition, a new authority – the European Systemic Risk Board (ESRB) – has been established with a mandate to conduct macro prudential supervision within the EU.

the young workers), that, as a result, carry extremely large economic and social costs. This is socially unfair and economically inefficient. European countries must made more efforts to resolutely pursue – and with far greater urgency than in the past – the necessary structural reforms in product markets, labour markets, pension systems and so on. In this respect, a key contribution to the strengthening of the euro area’s long-term economic prospects will come from the thorough implementation of the Europe 2020 strategy, with its focus on key areas such as: (i) education, research and innovation; (ii) resource efficiency; and (iii) high levels of employment and social cohesion. III. (c)  Enhancing the crisis management framework  In response to the sovereign debt crisis, the euro area has recently armed itself with an important tool to safeguard area-wide financial stability. At the European Council meeting of 24 and 25 March 2011 the Heads of State or Government of the EU agreed to establish a permanent European Stability Mechanism (ESM) based on the existing temporary European Financial Stability Facility (which will remain in place until June 2013). The ESM will grant financial assistance to countries in distress in the form of credit, with the assistance provided under strict conditionality and on the basis of a strict analysis – conducted by the European Commission and the IMF, in liaison with the ECB – of the sustainability of the relevant country’s debts. The establishment of the ESM represents an important addition to the institutional fabric of EMU.