through disclosure obligations or restrictions on certain financial transactions and instruments. this will require dynamic monitoring of the financial system and coordination across authorities. finally, the fsb is examining the possible regulation of shadow banking entities, such as hedge funds, that may pose systemic risks by limiting their maturity transformation and leverage. this last option should take into account the relative size of these institutions and the cumulative impact of other measures. bis central bankers ’ speeches whatever decisions are taken in the coming months, no one should be tempted to declare “ mission accomplished. ” in order to maintain systemic resilience, the monitoring, supervision and regulation of shadow banking will need to be dynamic. 2 the recent loss incurred by ubs on its delta one trading desk demonstrates the need for vigilant risk management of complex new products. fortunately for the system, the loss was manageable, given the increased capital buffer at the bank, and a broader liquidity squeeze was avoided. the fsb has been prescient in highlighting the risks associated with synthetic etfs. 3 synthetic etfs are sometimes being used to fund illiquid collateral which, if financed on a bank ’ s balance sheet, would carry a higher risk weight. the potential for a procyclical liquidity cycle needs to be monitored carefully. reform of the shadow banking sector offers an opportunity to ensure the consistency of the overall financial reform package. for example, capital rules will have to balance risks to institutions with the benefits of incentivizing direct and indirect settlement of standardized derivatives through ccps. liquidity standards and market infrastructure should reinforce the continuous availability of core funding markets. in this manner, both systemic resiliency and efficiency can increase. as authorities examine measures on a comprehensive, system - wide basis, adjustments may need to be made. liquidity standards are one example. the basel committee and the committee on the global financial system ( cgfs ) are currently using the observation period to review contentious design issues concerning the liquidity coverage ratio ( lcr ), such as uncertainty regarding how the liquid assets can be used in times of stress, and how the liquidity rules are supposed to operate in tandem with the new leverage ratio requirement. they are also examining potential unintended consequences on the commercial paper market and market - making for equities. the fsb ’ s work on shadow banking will shed more light on the intersection among these standards, key markets and economic performance. these issues need to be addressed before the new rules are fully implemented. 4

. it is estimated that in the united states the cross - border ownership of capital across states enables 40 % of the asymmetric shocks affecting a state to be diluted among the rest through private capital markets. however, in the euro area such dilution is only 10 %, owing to a greater national bias in asset holdings. the main private channel for risk dilution in the euro area at present is that of lending by the european banks that operate in different member states. but this channel becomes unstable and may even shrink or disappear in situations of uncertainty owing to the link between sovereign states and their domestic banks. as is known, capital markets in europe are less developed and less integrated than in the united states. corporate financing on equity markets is very limited and, moreover, shows a strong national bias. in the united states, cross - border holdings of assets play a significant role in mitigating the shocks that affect a state. however, in europe this mechanism is very limited. this is why it is crucial to complete the capital markets union project so as to achieve greater depth and integration of european union capital markets. that will allow for greater risk - sharing in private euro area channels and less reliance on bank financing, which will result in greater stability in the euro area. the aim of this project is to provide new financing sources for firms at a lower cost, and at the same time to attract more foreign investment towards the european union. to achieve this, the european commission proposed a plan of action in 2015 with over 30 measures to construct an integrated capital market in the european union, to be completed by 2019. however, so far, the implementation of these measures has been slow and incomplete. it is a far - reaching project requiring highly diverse measures, including most notably the creation of market infrastructure, the harmonisation of market regulation and supervision, and the strengthening of the european supervisory authorities. 6 / 7 there is also a need to move towards harmonising insolvency arrangements, both for banks and non - financial corporations, and to tackle aspects such as the bias in some countries ’ tax systems towards debt as opposed to equity financing. moreover, this project takes on particular importance in the context of the exit from the european union of the united kingdom, which currently plays a key role as a european financial centre. in connection with the capital markets union, some initiatives have been adopted to provide financing for those segments with scant access to bank lending. one example is the innovation projects for which the promotion of