This project is essential to overcome the problems of fragmentation which still beset European markets and which cause the perception of risk associated with banks’ liability instruments to differ depending on the jurisdiction in which they operate. However, as you know, to ensure that non-viable banks are resolved in the same way in the various Member States of the euro area, it does not suffice to have a set of common regulations; rather, it is necessary to have a single resolution authority to ensure that the regulations are applied uniformly in all countries. Similarly, the financial support needed for orderly bank resolution must be available under similar conditions whenever required. Clearly the lack of a full European resolution mechanism (including uniform rules, a single authority and a common fund) would limit the effectiveness of the single supervisory mechanism. In that case, the single supervisory mechanism would have to resort to a complex system of interaction with the national authorities (which would have to continue using their resources to cover the fiscal effects of the problems of non-viability detected by the supervisor) to ensure financial stability. In this respect the draft legislative proposal submitted by the European Commission (EC) last July for the establishment of a single resolution mechanism is very timely. The EC proposes the creation of a single resolution agency or authority, which would manage a common fund fed by contributions from the industry and ultimately report to the European Commission.

Nevertheless, as we have seen in the crisis, the availability of a large volume of capital does not per se guarantee an institution’s resilience in the face of sufficiently adverse shocks. That justifies the introduction of further restrictions, such as those setting a maximum leverage ratio and minimum liquidity, which are currently subject to an observation period that will culminate in them being definitively parameterised and incorporated into the new regulatory requirements. Finally, the new legislation includes macroprudential tools which seek to complement the requirements aimed at strengthening each institution's solvency with obligations directed at protecting the system as a whole. Two measures stand out among the macroprudential measures envisaged: those seeking to reduce the procyclicality of microprudential regulation by introducing a countercyclical capital buffer, and those aimed at mitigating the systemic effects of the possible insolvency of individual banks. The second set of measures includes an additional capital buffer for systemically important banks, which is complemented by supplementary requirements for those institutions with the capacity to affect the global financial system. Further, the new legislation includes the adoption of additional macroprudential controls (in the form of capital buffers, changes in risk weightings, etc.) for banks on the basis of their exposure to specific sectors where marked imbalances can be identified. Undoubtedly, these regulatory changes will exert a noticeable positive effect on the capacity of banks to withstand periods of stress and that will result in less frequent and milder crises which, furthermore, should entail lower costs for the public.