, it is probably not the only one. that is why the risks of euro - area sovereign bonds cannot be be so easily diversified. at least standard and poors does not anticipate that esbies would gain the secure aaa rating. under such circumstances, the supply of secure assets in the euro area might become scarcer, not more abundant above and beyond that, the proposal leaves a number of further open questions. only when such questions have been answered will be it possible to assess what implications the introduction of sovereign bond - backed securities would have for the functioning of the national sovereign debt markets. furthermore, it would be necessary to rule out the possibility of such securities leading to greater mutual liability. such a development would further undermine individual national responsibility in the euro area – with all the problems i have already discussed. it would therefore have to be ensured that sovereign bond - backed securities are issued only by private financial market players – and certainly not by a european debt agency that potentially possesses a government guarantee. one simple fact cannot be avoided either. risks don ’ t disappear just by packaging them ; they simply become concentrated in junior tranches – we learned that much from the subprime crisis. that is why the banks have to back all tranches of securitisation in a risk - appropriate manner with capital in future. there should be no preferential treatment of sovereign bond - backed securities compared with sovereign or private bonds. that is because preferential regulatory treatment would encourage a mispricing of sovereign default risks and thus harbour a further risk 8 / 9 bis central bankers'speeches to financial stability. notwithstanding such unanswered questions, if there were a desire to persist in separating sovereign bonds into safe and less safe components, the obvious thing to do would be for each government to package its own bonds into different tranches so that especially safe national securities would then be created. 5. concluding remarks ladies and gentlemen you can look at it from any angle, and you can ’ t avoid one fact. sovereign default risks cannot be eradicated by packaging sovereign bonds or by splitting up bonds into safe and less safe tranches. safe opportunities for investment can only be created by the member states themselves by ensuring sound public budgets. this is best achieved by consistently implementing the liability principle. i spoke about that at the beginning of my speech. like riding on the big wheel, i ’ ve therefore almost come back to the point from where i started. that means it ’ s time for me to get off. and

both their short and long - term effects on banks and the real economy. repeated fears have been voiced from within the financial industry that the stricter basel iii regulations combined with the more far - reaching requirements for sifis will have the effect of restricting the credit supply. the basel committee has looked into this question and come to the conclusion that the drawbacks are outweighed by the advantages, namely the gain in stability and the reduced likelihood of future crises. a moderate increase in the cost of lending and minor losses in growth will thus not put at risk the supply of credit to the economy. pressing ahead with work on the various elements of the reform agenda in parallel harbours the risk that individual measures might conflict with each other. in our closely interlinked financial system, focusing on sector - specific measures can easily lead to unintended bis central bankers ’ speeches interactions occurring or even conflicting incentives being set. such a lack of consistency might lessen the desired effects of the new regulations or even negate them entirely. one possible instance of unwanted interactions is the combined effect of european banking regulation and the eu solvency regime for insurers. this is because banking regulation aims to place bank funding on a stable, that is a long - term basis, while, under certain conditions, the solvency regime gives preference to bank bonds with short maturities. capital requirements increase relatively sharply given longer duration of the bank debt securities held by insurance companies – at least when the standard formula is used. the outcome might be that insurers change their asset allocation to the detriment of bank debt securities. as insurers are among the most important investors in bank bonds, this could ultimately lead to an increase in banks ’ funding costs. within a single sector, too, different regulations can set conflicting incentives. one example of this might be the interplay between the eu crisis management directive and the scheduled liquidity ratio requirements. this is because the draft proposals of the directive provide for short - term liabilities being excluded from bail - in, thus setting incentive for short - term funding. this is diametrically opposed to the aim of regulating liquidity, which is to safeguard the maintenance of liquid funds even under unfavourable circumstances and for longer periods of time. of course, a final judgement on the effects of each of the regulatory initiatives can only be made when their precise details are known and as soon as robust empirical evidence is available. in the end, for the regulatory reforms to have their desired