developed into a loss of confidence across the whole economy and eventually a deep recession. after years of benign economic developments, all policy - makers suddenly faced very uncertain circumstances. a key feature of the uncertainty generated by financial crises is that it places decisionmakers in uncharted territory. events happen that were deemed to be almost impossible before the crisis, and were therefore difficult to forecast on the basis of statistical methods. this was the case for developments in the interbank market in the first phase of the crisis. up until july 2007, the general perception among market participants was that loans between financial institutions were essentially safe. banks trusted each other, both because bank defaults in developed economies had previously been rare events and because the very short loan periods minimised the risks that borrowers would not repay their loans. as a result, banks were happy to lend to other banks in large amounts at the same interest rate that they were charged when borrowing from the central bank. occasional differences of a few hundredths of a percentage point between these interest rates were interpreted as signs of stress, but they were often due to technical factors and therefore very short - lived. but in august 2007, in response to negative developments in the market for us sub - prime mortgages, uncertainty about the creditworthiness of many financial institutions suddenly increased. banks became unwilling to lend in the money market. as funds disappeared from the market, the difference between the cost of unsecured short - term funding from other banks – what in the euro area is called euribor – and the interest rate on money provided by central banks suddenly jumped from near zero to unprecedented levels of around 60 basis points. this sudden widening in the interest rate differential – what is known as the spread – happened simultaneously in the euro area, the us and the uk ( see figure 1 ). not only was this unpredictable, but policy - makers and market participants were also extremely uncertain bis central bankers ’ speeches about whether the spread would widen further and when there would be a return to normal conditions. some researchers have drawn a parallel between the money market crisis and nassim taleb ’ s1 description of “ black swan ” events. the idea of black swan events originates from the assumption, based on centuries of experience in europe, that there was only one kind of swan : white swans. this assumption was invalidated only in the eighteenth century by the observation of a black swan in australia. in taleb ’ s analogy, “ black swans ” are extreme outcome but low

the six - pack and the two - pack. we should take great care not to roll back this important achievement, or to water down its implementation to an extent that it would no longer be seen as a credible framework. notwithstanding the significance of the reinforcements put in place for the policy framework, i believe that there is still room for further legislative action where the financial sector is concerned. in addition to a better performing banking sector, an increased role of capital markets could help to support both growth in europe and the financing of the real economy. to fully reap the benefits of capital market integration, the regulatory environment needs to be harmonised further and, potentially, to be adapted. the joint paper of the ecb and the bank of england on a better functioning securitisation market in the eu has set out a number of proposals in this regard. furthermore, a better regulation of financial benchmarks is bis central bankers ’ speeches necessary to restore the confidence and trust of citizens and market participants in the financial system. a swift adoption of the relevant commission ’ s proposal is of utmost importance. discussions will also continue on the shape and structure of our banking sector and the regulation of the shadow banking sector. finally, over and beyond this focus on concrete short and medium - term measures, we should bear in mind that economic and monetary union still remains an incomplete structure. let us seize the opportunity of a new parliament and a new executive to reflect further on how to develop the architecture of our emu in order to enhance its functioning. in particular, i think there is a case for some form of common governance over structural reforms. this is because the outcome of structural reforms – a continuously high level of productivity and competitiveness – is not merely in a country ’ s own interest. it is in the interest of the union as a whole. for example, one could consider embedding the process of undertaking necessary structural reforms in a common framework of convergence towards policies and institutions aligned to best practices. honourable members, as eu institutions, the central bank and the parliament of the european union are duty bound to maintain a close and fruitful relationship of cooperation. i sincerely hope that in this respect, we can continue in the same spirit as we left off three months ago. i am now looking forward to answering your questions. bis central bankers ’ speeches