be shared. conversely, in the euro area, around 70 % of the financing received by households and firms is mediated by the banking sector, while only the remaining 30 % is obtained on capital markets. this is practically the opposite of the united states, and reveals how the financing of the economy depends on the banking sector in europe. as a result, capital markets in the euro area absorb 10 % of shocks, and the credit channel around 34 %. 3 / 9 yet irrespective of the different composition of the risk - diversification channels, what needs highlighting is that in the euro area the combined power of all the private risk - sharing channels is much more limited than in more stable monetary unions. given that the role of the public sector is also virtually non - existent in europe ’ s case, the outcome is that more than 56 % of the effect of shocks – as opposed to 28 % in the united states – is not shared. moreover, it is important to note that during the most acute phase of the last financial crisis, the main risk - sharing channel in the euro area − the credit channel – virtually disappeared, owing to the process of renationalisation of bank loans. this was due to the climate of mistrust about banks ’ financial health, and to the existence of negative feedback loops between public finances and banking solvency. to sum up, in the euro area our risk - sharing channels are weaker and, what is more, they tend to contract precisely when they are most needed. the limited strength of private risk - sharing channels in the euro area reflects both the underdevelopment of capital markets and a highly segmented banking system at the national level. there are practically no banks with a pan - european strategy, and there is little progress in cross - border lending, especially in the retail markets, or in other words, in lending to households and firms. today, the euro area ’ s banks continue to grant more than 90 % of credit to firms resident in the same country, with only 5 % going to firms in other euro area countries. in the case of loans to households, the bias is even greater. expanding this foreign activity is essential for the sound working of the euro area. in this respect, there is still a long way to go before we achieve a pan - european banking system and a more complete banking union. the need to complete banking union since banking union was launched in 2012, substantial institutional progress has been made towards the creation of a new

roger w ferguson, jr : basel ii - a realist's perspective speech by mr roger w ferguson, jr, vice chairman of the board of governors of the us federal reserve system, at the risk management association's conference on capital management, washington, d. c., 9 april 2003. * * * i am grateful to the risk management association ( rma ) for inviting me to speak with you today. in recent years, the rma has been at the forefront of efforts to strengthen risk management within the banking sector and has done excellent work fostering discussions of emerging best practices. the rma has also provided valuable input to another effort that is intimately connected with improvements in bank risk management - - basel ii. today, i intend to provide you with my candid perspective on the basel ii effort, its current status, and where it is headed. it is important that each of us with a stake in the outcome of basel ii consider it seriously and realistically ; i intend to contribute today to such a discussion. i want to first present some of the premises on which i have based my own involvement in the basel ii effort and then turn to the process that we see unfolding in the united states. i will also address some of the concerns that have been raised regarding whether the u. s. approach to basel ii is overly limited in scope. starting points let me begin with a now - familiar argument : the need for basel ii arises because our current capital framework, basel i, is deficient for our larger banks, particularly for our largest, most complex banks. the familiarity of this argument does not lessen its force. as you know, the purpose of a risk - based regulatory regime for capital adequacy is to define a minimum cushion for banks to ensure their safety and soundness and to provide a benchmark by which the financial condition of banks can be measured. the risk - based ratios seek to compare available capital to a measure of the risks taken on. we see today that the largest, most complex banks operate their businesses and conduct risk management in a manner that is substantially different from the method by which they calculate regulatory capital. this difference reduces the usefulness and meaningfulness of regulatory capital ratios and places a burden on banks that must reconcile their risk - management and regulatory capital approaches. in addition, we must consider that material weakness, let alone failure, among the larger, more - complex banks in the united states could pose a significant challenge for our economy and