future problems in the banking system. and if the liquidity is channelled towards sovereigns that find it otherwise hard to access the markets, we run the risk of blurring the lines between monetary and fiscal policy. greece is a case in point here. the emergency liquidity assistance ( ela ) – which was originally conceived as a temporary source of liquidity for financially sound banks in return for good collateral – has been provided for a protracted period of time and has become the banks ’ only source of funding. this casts doubt on their financial solidity. the latter is especially undermined by greek policy decisions that have sparked capital flight and largescale cash withdrawals. banks receiving ela should be urged to do their utmost to improve their liquidity situation and be prevented from worsening it further by rolling over illiquid t - bills of their sovereign. against this background, it should be clear to all the parties to the current negotiations that the eurosystem must not provide bridge financing to greece even in anticipation of later disbursements. when banks without access to the markets buy debt of a sovereign which is bis central bankers ’ speeches likewise locked out of the market, taking recourse to ela raises serious monetary financing concerns. respecting the core principles upon which our monetary union is built is not a matter of dogmatic german stubbornness, but a key policy condition for long - term economic prosperity in the euro area and for maintaining popular support for the historic project which european integration no doubt is. besides the balance that monetary policymakers themselves have to strike, there is another state of balance they count on to maintain price stability – a well - balanced financial system. 2. credit and capital : competition or complementarity? let us have a closer look into the relationship between bank - based financing and marketbased financing. does one detract from the other, or can one deliver benefits where the other one comes up short? to put it succinctly : are credit and capital competitive or complementary? the debate on the superiority of bank - based or market - based financial systems is decades, if not centuries old. 1 one notable development that sparked this debate was the differences in growth between germany and the uk in the late nineteenth and early twentieth centuries. some argued that it was the pre - eminence of banks and their close relationship with their clients that facilitated the rapid growth of germany ’ s manufacturing industry. others pointed out that while manufacturing growth in germany was faster,

by regulation. it is a bank ’ s culture that lays the ground for misdemeanour. and the influence of regulation on a bank ’ s culture is indirect and limited at best. out of enlightened self - interest, banks should take the initiative and do everything possible to establish a culture in which responsibility is rewarded and recklessness rejected. a banker ’ s code of conduct, for instance, might be helpful in this respect. introducing a voluntary selfcommitment might overcome banks ’ qualms about embracing cultural change within their respective institutions. still, mark carney is also right in saying : “ this is a major opportunity for the industry to establish common standards of market practice. but if firms and their staff fail to take this opportunity, more restrictive regulation is inevitable. ” 6. conclusion ladies and gentlemen, let me conclude. the crisis has shown that europe ’ s one - legged bank - based financial system could do with another fully developed leg – market - based finance. doing away with the impediments that hamper the full integration of european capital markets is key not only to diversifying sources of funding in a crisis, but also to strengthening the risk - sharing arrangements a monetary union requires. by the same token, the regulatory gaps that still amount to implicit subsidies for banks must be removed once and all without allowing the emergence of unregulated systemic entities elsewhere. banks provide important services to society, and many banks do not deserve the reputation the banking industry has gained during the crisis. however, unless banking becomes an bis central bankers ’ speeches industry that is more similar to others with regard to market entrance, exit, and power, further regulatory steps are necessary, especially in terms of resolving the “ too big to fail ” issue. thank you for your attention. bis central bankers ’ speeches