##s must also, in cooperation with the esrb, initiate and coordinate union - wide stress tests to assess the resilience of financial institutions to adverse market developments. the esrb monitors and assess systemic risk with the objective of lowering the probability of a build - up of systemic risk or mitigating the impact of any materialization of systemic risk. the esrb ’ s principal tasks include identifying and assessing systemic risks, issuing early warnings as risks emerge, and formulating policy recommendations in response to the observed risks. warnings and recommendations can be addressed to the european union as a whole, to one or more member states, to one or more of the esas, or to one or more national supervisory authorities. the move in belgium to the twin peaks model is in line with these developments. this adaptation of the domestic institutional framework allows for a regular flow of information between microprudential and macroprudential supervisors and for the coordination of micro and macro - prudential policies. it also permits application of the “ four - eyes principle ”, which incorporates a transversal approach to risk analysis, across risks, institutions, and time. 5. impacts of these developments on the belgian banking sector as indicated by the previous speaker, the financial sector will face a very competitive environment in the search of stable financing. this will result in a number of consequences : more costly credit. it is difficult to deny that the stricter capital requirements, combined with the new liquidity rules and new taxes, will increase the cost of credit. we do not yet know the extent to which this higher cost will impact aggregate lending or the real economy. however, the experience of the past three years has clearly demonstrated that banking crises are extremely costly and have significant negative, long - term impacts on the economy. the deleveraging process will reinforce this development. this is likely to affect more sme ’ s than larger corporations, that can still access the financial markets. this last development may lead to some disintermediation. fewer cross - border institutions or activity, or less centralized liquidity management. the failures of resolution frameworks revealed by the crisis and the difficulty of establishing an effective resolution framework for cross - border institutions suggest that cross - border activity will be reduced in the future. bis central bankers ’ speeches contributing to this development may be the new liquidity requirements, which could result in less centralized liquidity management by cross - border groups. at the same time, while some degree of explicit or implicit ring

- fencing is an understandable outcome of the crisis, we must be aware of the fact that belgium is a country with excess savings. we would not be doing belgian banks a favor by forcing them to employ all of belgian savings within belgium. we will need to ensure that the new regulatory framework allows for an appropriate balance between limiting the risks associated with cross - border activities and allowing savings to flow to their most profitable uses. industrial organization and sifis. another dimension through which the future structure of the banking system may be affected is related to the treatment of sifis. the identification of sifis involves gauging, among other things, size, market shares, and the degree of interconnectedness between banks. limiting their size and interconnectedness, which sifis should have the incentive to do, will potentially lower concentration in the banking system and reduce the potential contagion that could result from a shock. risk management for systemically important banks will also likely differ from the past, as sifis will be required to formulate recovery plans and regularly update them. developing a recovery plan requires envisaging a series of scenarios involving severe shocks and the bank ’ s possible responses to those the potential in consultation with authorities shocks, as well as assessing effectiveness of these responses. the recovery plan process must be ongoing and integrated into the bank ’ s risk management procedures. this process should require banks to undertake more advanced planning for distress situations than in the past and should encourage a fundamental reflection regarding the rationale underlying the bank ’ s activities, complexity, and organizational structure. greater focus on traditional banking. several elements of the regulatory reforms ( e. g., liquidity requirements and increases in capital requirements for the trading book ) provide the incentive for banks to move more toward the “ traditional ” model of banking. while a requirement such as the ring - fencing of retail banking from investment banking proposed in the uk probably goes too far, a toughening of capital requirements for the trading book and greater alignment of capital requirements for exposures in the trading and banking book should give banks less incentive to take excessive risk through proprietary trading, thereby relying more on traditional banking activity. in smaller countries like belgium ring fencing retail banks would be rather counterproductive. the main victims of such a reform could be the sme ’ s. they need more sophisticated instruments than those retails banks can offer and they would be too small for investment banks. we have in belgium a strong model of universal banking. we