which the eu supervisory framework has been affected. after that, i will ask what is needed, and indicate three main areas of change. then i will address the institutional issue of where to locate the strengthened european competences for prudential supervision. financial market developments let me start by considering three recent financial market developments of relevant impact to the existing eu supervisory framework. i thank f. recine, w. coussens, l. stracca and t. martens for their input and comments. the views expressed belong to the author. first, financial market integration has increased enormously over the last decade, at a global level but also, and especially, within the euro area. let me give you just a few statistics : at the end of 2007 there were 45 banking groups in the eu with cross - border activities, representing about 70 % of eu banking assets. 33 of these banks are incorporated in the euro area. integration means greater interconnection and thus a greater risk of contagion. a crisis affecting an institution in one country is more likely to affect other countries ’ institutions. second, financial innovation has accelerated over the years, leading to the creation of sophisticated instruments and vehicles. the pricing and marketability of instruments has become complex and interconnected. third, competition is a key driving factor in financial markets. importantly, competition takes place not only between financial institutions and market participants, but also between financial centres. this is true also within the eu ’ s single financial market. to the extent that eu member states have their “ own ” financial centres, there is also competition between the member states. to sum up, financial markets have become more european, more complex and more competitive, and competition has increased between institutions and jurisdictions. european supervisory shortcomings against this background, the eu regulatory and supervisory framework, which is based on a set of eu directives and some mechanisms for cooperation designed several years ago, does not seem to have worked as expected. let me mention three shortcomings. first, even though we have a single market in europe, there remains substantial room for discretion in the transposition of eu directives into national legislation. this latitude can be used by national legislators to improve the competitiveness of the institutions and infrastructures in their own countries. the lamfalussy framework, which was supposed to promote the convergence of regulatory and supervisory practices, has been insufficient. high costs are being imposed on banks, especially those that have to comply with more than one rule

lorenzo bini smaghi : regulation and supervisory architecture – is the eu on the right path? speech by mr lorenzo bini smaghi, member of the executive board of the european central bank, at the 2009 econ meeting with national parliaments “ financial crisis : where does europe stand? ”, brussels, 12 february 2009. * * * introduction 1 it is a pleasure for me to be invited to talk about regulation and supervisory architecture at this important meeting. i think we have an excellent opportunity today to exchange thoughts about these interesting and demanding times. this is a topic of special interest to the ecb, as well as to the citizens and taxpayers of europe. restoring confidence in financial markets and institutions is of fundamental importance, and safeguarding such confidence is one of the main raisons d ’ etre of any supervisory system. international fora are seeking to identify and analyse the weaknesses of the current regulatory and supervisory framework, and are reflecting on the improvements needed. the next g20 summit, on 2 april 2009, will play a crucial part in reaching an international understanding on the main elements of the new regulatory framework resulting from the financial crisis. today, i would like to focus on the enhancements to the european regulatory and supervisory architecture which need to be implemented in order to restore confidence. the financial crisis has affected all european countries. in some, the financial landscape has dramatically changed. there is now a broad consensus that shortcomings in the regulatory and supervisory framework have been at the root of the problem. restoring confidence in financial markets thus requires a substantial overhaul of the supervisory framework, both at national and european level. these changes call for political decisions, which are in your area of responsibility, at national and european level. various bodies are examining the situation. in particular, the group chaired by jacques de larosiere will deliver its report to the european commission shortly. the ecb has provided input to this report, although i am not sure how its contribution will be reflected in the final version. i would like to make some remarks today in a personal capacity. this might help me to be more direct and clear - cut. let me mention from the very beginning, however, that i very much concur with the european parliament draft resolution on the european economic recovery programme as far as the ecb role in supervision is concerned. i will start by mentioning three key financial market developments that have changed the prudential supervision environment in europe. i will then look at three ways in