more resilient capital markets. first, it is promoting a shared understanding of the fundamental drivers of market liquidity. second, it is gathering consistent information on the nature and size of the risks associated with market - based finance. the esrb has unique powers in this regard given its ability to collect information from financial participants from across the eu. 1 the esrb is currently surveying market makers and asset managers as part of a broader study into the risks from a reduction in market liquidity. this work should be completed by mid - 2016. the survey will draw out the implications for liquidity conditions, including whether openended funds have liquidity sufficient to meet redemptions in the event of market stress. of course, the esrb must exercise this power with care and precision. and the case for doing so must be compelling. but the rapid growth of market - based finance satisfies these tests. bis central bankers ’ speeches in a similar survey of 143 investment funds, the bank of england found that, in aggregate, these funds expected to be able to liquidate in one day roughly three times estimated dollar corporate bond market turnover ; clearly a fallacy of composition. the esrb survey will provide a valuable wider perspective. armed with such insights, the esrb can help design appropriate policy responses. stress testing of the investment fund sector can be expected in the future, complementing existing stress tests of banks, insurers and pension funds. the esrb is also beginning to access detailed derivative trade reports from trade repositories across the union. by pooling national expertise and leveraging the esrb ’ s unique access to the entire set of trades, authorities can better understand the complex webs of derivative transactions and how they could propagate and dampen risk across the system. it can also assess the impact of mandatory central clearing and whether it shifts risks to other parts of the system such as direct clearing banks. 3. greater openness can require shared approaches to managing risks in some cases, shared understanding is not sufficient ; authorities also need shared ways of managing risks. the esrb is the only hub where all the relevant authorities are present, including central banks, bank supervisors, and securities authorities. through our regular dialogue we can establish and update best practice. consider residential real estate. this year esrb ’ s work emphasised how these markets were influenced by structural differences, from loan - to - value restrictions to tax treatments, across the eu. its analysis identified the tools authorities may use

to respond to different vulnerabilities, ranging from capital measures to restrictions on debt - to - income ratios and collateral. key lessons of the analysis include that : 1. flexibility is needed in both design and calibration of macroprudential tools ; 2. no single tool can combat all property risks ; 3. tools need to be appropriate to domestic circumstances ; and 4. domestic policies are more effective for both domestic and eu financial stability if their spillovers are managed. the esrb has built a framework to assess and manage such spillovers, which should be agreed soon and be operationalised early next year. its central feature is reciprocity – eliminating regulatory arbitrage to give domestic policy greater traction. it will be member led, but, importantly, backed by esrb recommendations. compliance will be on an “ act or explain ” basis but the presumption will be that many exposure - based measures ( e. g. ltv, lti and maturity ) will be reciprocated. this is significant. the esrb has been notified of macroprudential actions 69 times this year, and 173 times since the introduction of the crr / crd in 2014. although many notices are procedural, they show the direction of travel. more countries are using macroprudential tools, creating an increasing need for a “ clearing house ” that is both comprehensive and timely. the esrb will also evaluate the ways national macroprudential authorities might apply countercyclical capital buffers against financial exposures from countries outside the eea – a tool given to the esrb under union law. that will further bolster collective resilience against the global financial cycle and spillovers from outside the union. while risks in property markets reflect national differences, other risks such as misconduct have more common determinants. bis central bankers ’ speeches in the past five years, misconduct penalties imposed on eu banks have totalled €50bn. those costs have direct implications for the real economy. at 5 % leverage, that capital could have supported €1 trillion of lending capacity. more fundamentally, repeated episodes of misconduct undercut public trust in the system. 2 the esrb ’ s work has helped catalyse sensible actions to begin the process to rebuild that trust. first, it has proposed capturing misconduct costs in stress tests to ensure banks remain resilient even under severe outcomes. the bank of england has followed this approach in its most recent stress test which included and additional £