I don’t think the time has come for this, either at a conceptual or practical level. But rather, I think that we need to develop the existing institutional system for European banking supervision in order to ensure that all of the possibilities for co-operation and convergence are fully taken advantage of. The main policy objective at this stage should be to enhance cross-border supervisory co-operation in order for supervisory action to be perceived as unified. This system should be built on four levels. At the first level, we have the competent supervisor of each banking institution (whether this is the home or host supervisor in the context of the group), which will have to fulfil its responsibilities and accountabilities, on the basis of the powers and obligations it has been given by the national parliament and legislators. The second level consists of bilateral co-operation between the supervisors of internationally active institutions. This has long been the bedrock of effective supervision in the context of increasing internationalisation, and will continue to be essential in the future. Multilateral co-operation forms the basis of the third level. This is an aspect that has become progressively more significant in recent times, and which will grow in importance in the coming years. Both bilateral and multilateral arrangements will be increasingly necessary in the context of Basel II, where, as we have already discussed, the consolidated supervisor will be responsible for co-ordinating the supervisory process in relation to assessing applications to use the advanced approaches.

Looking at the wider prudential framework let me mention two specific areas where the European Commission is currently reviewing the existing EU regulation. The first area relates to deposit guarantee schemes. Although the deposit guarantee directive of 1994 was useful in setting common minimum requirements for national schemes, the current level of harmonisation is low, with different levels of protection and different structures in place across the EU. This is not only inefficient but may hinder further integration. As many of you will already be aware, the European Commission is currently undertaking a wide-ranging review of Deposit insurance arrangements, and I would encourage it to be ambitious in this respect. The second relates to the work being carried out by the Commission with the aim of ensuring that EU financial services legislation and supervisory practices do not pose barriers to cross-border mergers and acquisitions. Consolidation processes should be market-driven phenomena that respond to market needs, such as economies of scale, IT synergies, the benefits of diversification, access to a larger client base, etc. I think that supervisors do have a crucial but limited role to play in fulfilling their responsibility to ensure that banks are not taken over by shareholders that are not suitable on prudential grounds. But this is as far as we should go. The Supervisory framework Let me now turn to the supervisory framework. I believe that we need to think in terms of a European system of banking supervision. I am not talking about a single European supervisory authority.