supervisory practice of assessing planned distributions of dividends on a bank - by - bank basis. we opted to be prudent today to avoid having regrets tomorrow should overall economic conditions further deteriorate. the ecb is in good company. other institutions have joined the effort to keep the financial taps open for the real economy during this exceptional period. after the “ quick fix ” to the capital requirements regulation, the european commission recently adopted a capital markets recovery package to make it easier for capital markets to support the economic recovery. the proposal to amend the securitisation regulation is part of this package. it includes a recital stating that the requirements on direct risk retention, transparency and the resecuritisation ban are also prudential obligations and thus specifically entrusted to the competent authorities in charge of prudential supervision, implying that the ecb has an active supervisory role in these areas. this, in my view, is problematic. the ecb recognises its competence to supervise banks ’ adherence to some securitisation 1 / 2 bis central bankers'speeches obligations that are prudential in nature, such as the use of proper credit granting criteria for exposures to be securitised. however, the other tasks include the supervision of compliance with direct risk retention requirements, transparency requirements and the ban on resecuritisation. these tasks fall under the category of product supervision rather than prudential supervision. they ensure the alignment of interests between investors and originators, and between sponsors and original lenders. they allow investors to understand, assess and compare securitisation transactions. the ecb cannot take on these tasks because they go beyond its prudential supervision mandate. article 127 ( 6 ) of the treaty on the functioning of the european union and the ssm regulation clearly define these limitations. a simple recital cannot change these ; only a treaty change can. re - labelling financial product supervision tasks as prudential tasks won ’ t do the trick. what ’ s more, assigning financial product supervision to the ecb could result in conflicting responsibilities. in its role as prudential supervisor, the ecb generally wants as little risk as possible to remain with a bank acting as originator, so as to minimise arbitrage opportunities with the corresponding reduction of capital requirements. at the same time, the competent authority needs to ensure that the bank retains a material net economic interest under the risk retention obligation. this might be linked to the need to preserve proper credit

certain kinds of assets whose values are not available on a high frequency basis? changes in housing prices are dependent on a whole vector of factors, ranging from changes in local zoning and land laws, demand and supply balances in local areas, to changes in monetary policy. it is difficult to devise land price or housing price systems that are high frequency enough to transmit quickly through credit ratings and the like. however, improvements could be envisaged in terms of reforms in the land pricing systems, improvements in the functioning of laws and procedures for foreclosure, bankruptcy and rehabilitation. efficient functioning of such processes and functioning of legal systems is essential if collateral is to have a marketable value that is observable and hence susceptible to systemization in terms of information that can then become transparent. when the presumed value behind collateral is not either observable or realizable, securitization markets break down. and this is what seems to have happened in financial markets today. the lesson of the current financial market crisis goes both ways. on the one hand, market innovation has indeed helped in bringing financial markets closer to those who need credit and did not have access to it earlier. despite all the problems associated with sub - prime borrowers, it must be recognized that almost 10 million borrowers benefited from this market and were enabled access to housing finance, which had not been deemed possible earlier. with about 20 per cent of these borrowers reported to be delinquent, and in difficulty, it still means that about 8 million people clearly benefited from this market. on the other hand, the difficulties encountered draw attention to the kind of issues that can arise when the speed of innovation and incentive structures are flawed such that malpractices occur, and intrinsic difficulties arise in capturing and commoditizing information that is perhaps not yet susceptible to such commoditization. from our point of view, we need to recognise the positive contributions that financial innovations make to enhance the efficiency of financial intermediation. at the same time, the reserve bank considers, in a dynamic setting, appropriate safeguards to ensure stability, taking account of the prevailing governance standards, risk management systems and incentive frameworks in the foreign, public, private and cooperative banks as also related non - banks. overall, these progressive but cautious policies have contributed to both efficiency and stability of the financial system and enables current growth momentum in an environment of macro stability. ii. response of the monetary authorities a key question that has emerged from the