addition, the post - war experience does not teach us how to implement mass privatisation, nor how to put a huge sector of large state enterprises on a commercial basis, all simultaneously. third, transition economies have to liberalise their economies in an already highly liberalised international environment and of highly developed international capital markets. in such a context, policy mistakes or a lack of market confidence can easily lead to a large and rapid outflow of capital, thus draining away much - needed savings. these problems are exacerbated by weak financial systems where experience and expertise in, for instance, credit allocation is lacking. so what does eastern europe need? this leads me to believe that the needs of eastern europe are different from those of post - war europe under the marshall plan. at a conference several years ago, the reform process in eastern europe was compared first with post - war reconstruction and then with the reconversion of regions or industries in decline. 1 of the latter, we have plenty of examples, for instance, the shipbuilding industry in europe or the coal, steel and textile sectors. generally speaking, the transformation of these industries is a slow and painful process, usually at a high cost. whereas post - war reconstruction was a process of building upon what existed, reconversion, by its nature, implies changing and perhaps destroying the existing structure, not building upon it. this is much harder to achieve. which experience is the more relevant for eastern europe? in my opinion : reconversion. the discussion in eastern europe is not so much blanchard o. “ panel discussion : lessons for eastern europe today ”, postwar economic reconstruction and lessons for the east today, mit press, cambridge ma, 1993. about rebuilding existing structures, but rather about replacing them by new ones ; similar to the replacement of declining west european industries by new ones. the question is whether we can aid this reconversion process by transferring comparable amounts of money towards eastern europe as under the marshall plan. transferring the equivalent of 2. 5 % of national incomes of the recipient countries, has been estimated to cost roughly $ 20 billion a year. the bretton woods institutions have of course been extending credits but on a smaller scale. by comparison, the annual flow of total official financing to eastern europe has been around $ 15 billion, some 25 % below that which was transferred under the marshall plan. total flows, however, including private financing, reached some $ 36 billion in 1996. from the recipient ’ s perspective, therefore, the

the business models, of such large international banks. since the adoption of the international basel ii framework in 2005, the complexity of these rules has mushroomed. the basel iii reforms launched in response to the last financial crisis – including the final elements of the basel iii package that we are currently negotiating in basel – have made the rules even more detailed and complicated. we have the guiding principle of the reforms to thank for this : risk - oriented governance and 1 / 4 bis central bankers'speeches regulation are there to help banks allocate capital resources as efficiently as possible. but in order to prevent undercapitalisation, this approach needs very specific rules. this increases the compliance workload – that is, the effort associated with meeting the requirements as well as demonstrating that they ’ ve been met. the basel rules were made for large, internationally active banks – they were not designed with small banks in mind. yet, in europe, we adopted these rules for all european credit institutions alike – including the thousands of small and medium - sized banks with simple business models and regional focus. the motivation for this one - size - fits - all - regulation was to have a single set of rules for the single market. the eu ’ s primary goal of a common, single market meant that one single set of rules was preferred over differentiated sets of rules. proportionality – the principle that rules must be proportionate to the issue they address – played only a secondary role. while this makes good political sense, it has had serious side effects – as it favours large, internationally active banks over smaller institutions. particularly for credit institutions that are able to strongly optimise their employment of capital in order to benefit from higher returns, this is worth all the effort. and it ’ s worth it for especially large credit institutions because they can profit from economies of scale where fixed costs per product fall as the volume of business increases. this then also makes it easier to finance a larger compliance department. smaller, regionally based institutions, however, cannot normally rely on these economies of scale or a strong risk appetite as a source of income. seen from a single - entity perspective, the cost of regulation is similar or even higher for these banks, but their ability to take advantage of these complex strategies is somewhat weaker. in other words, the complicated risk - oriented approach favours banks with a large organisation, whose activities are more complex and which take on greater risks. the reason we should be giving this more thought is that the vast majority