##icality and to strengthen the resilience of the entire banking system are equally important. a systemwide focus addresses problems related to interconnectedness and the perception that some banks are too big to fail. an essential element in addressing systemwide risk is the build up of buffers in good times that can be drawn down in periods of stress. to help achieve this, the committee has introduced a capital conservation buffer. as a bank ’ s capital levels move closer to minimum requirements, the conservation buffer will impose a constraint on its discretionary distributions. these include dividend payments, share buybacks and bonuses. retaining a bigger proportion of earnings during a downturn will help ensure that capital remains available to support the bank ’ s ongoing business operations and lending during the period of stress. this buffer of 2. 5 % will be comprised of common equity and will be fully phased in by the end of 2018. in addition, the committee in july 2010 issued a proposal for a countercyclical buffer which would be imposed when, in the view of national authorities, excess aggregate credit growth is judged to be associated with an excessive build - up of system - wide risk. the countercyclical buffer would increase the conservation buffer range by up to an additional 2. 5 percentage points during such periods of excess credit growth. conversely, the buffer would be released when, in the judgment of the authorities, the released capital would help absorb losses in the banking system that pose a risk to financial stability. this would help reduce the risk that available credit is constrained by regulatory capital requirements. taken together, this framework of buffers is intended to increase banking sector resilience and mitigate procyclicality. the use of “ gone concern ” contingent capital would increase the contribution of the private sector to resolve future banking crises, thereby reducing moral hazard. the committee recently published a proposal for consultation based on a requirement that the contractual terms of capital instruments will allow them – at the option of the relevant authority – to be written off or converted to common shares if the bank is judged to be non - viable by the relevant authority. the potential role of “ going concern ” contingent capital in the capital framework is also currently under review. the objective here is to decrease the probability of banks, or the banking system as a whole, reaching the point of non - viability. several initiatives discussed above will help reduce procyclicality. these include the leverage ratio, capital conservation buffer and countercyclical capital buffer.

also bring new challenges and risks. for example, as a result of the shift in the relative importance of the transmission channels of monetary policy. interest - rate decisions may transmit to the real economy differently through markets than they do through the banking sector. this calls for careful analysis. and possibly a reassessment of the effectiveness of our monetary policy instruments. these instruments are bis central bankers ’ speeches currently primarily geared at the banking sector. however, to be able to influence financing conditions beyond the banking sector we may need to introduce new instruments. 15. another possible consequence is that risks may shift to the shadow banking sector. a sector that is currently less transparent and less regulated than the traditional banking sector. it is yet unclear what could be the financial stability implications if such a development were to occur. in any case, it would warrant enhanced monitoring of developments in the sector. one could even argue that a more formalized supervisory framework should be put in place. finally, it could be conceivable that macro - prudential policy measures would have to be applied beyond the banking sector. 16. as for the potential risks associated with developing capital markets, let me highlight one more issue. some might worry that by developing financial markets we will again see the introduction of complex financial instruments. the type of obscure instruments that according to many were the root cause of the global financial crisis. here, i would like to reiterate firmly that this is clearly not what i envisage. rather, the goal of capital markets union is to create a level - playing field by introducing simple standards that improve transparency. only then, can capital markets union foster financing flows that support economic growth in a sustainable way. dear participants, let me wrap up my address. 17. i presented to you a central banker ’ s view on capital markets union, and why i think this a very important initiative. today, the discussion on capital markets union is still at an early stage. the agenda is being set as - we - speak. having an exchange of views on such an important topic with esteemed members of the capital markets community could not have come at a better time. therefore, i very much look forward to the discussions later today. i ’ m confident that this conference will yield many interesting insights. new ideas that will bring us closer to completing this important pillar of our economic and monetary union. thank you for your attention. bis central bankers ’ speeches