treated separately. they arose under national responsibility and should not be mutualised. therefore, the planned financial inventory of banks ’ balance sheets is crucial and needs a close examination. banks which do not have a sustainable business model should not be kept alive with public financial support. 7. closing remarks overall, stress levels in the markets for european government bonds and bank refinancing have diminished significantly since the summer of 2012. nevertheless, the question whether the interbank market will return to its former integrated status remains open. secured trading in connection with the use of ccps may play a crucial role in the changing environment as it reduces counterparty risk and helps to improve collateral management. the ongoing repayments of the three - year ltros reduces excess liquidity in the money market and could be interpreted as suggesting that market participants no longer need as much access to central bank liquidity as before. but let me be unequivocal about one thing : this development has been induced by the markets, it has not been triggered by the eurosystem. bis central bankers ’ speeches furthermore, banks should focus on achieving a reasonable mix of short - term funding and refinancing via longer - term repos and bond issues. this could help alleviate the current tendency of some banks to leave their cash reserves in the ecb ’ s deposit facility rather than offering them in the interbank market. this would be an important step towards reestablishing a well - integrated money market in the euro area. the regulatory steps undertaken with basel iii go in the right direction, but their impact on the markets has to be carefully considered. in the banking sector, business models need further adjustments, which should ultimately result in a more resilient and diversified sector with a more sustainable risk - return profile. in the current low interest rate environment, it is surely no easy task to increase earnings. however, developments so far go in the right direction as eg german banks ’ average equity base has improved considerably since the beginning of the crisis. for the twenty biggest credit institutions, the core capital rate has doubled on average. nonetheless, the interconnectedness between banks and their home country has to be monitored closely as it holds a strong contagion risk. thank you for your attention. bis central bankers ’ speeches

; these rules also need to be strictly applied. the greater emphasis that has recently been placed on the notion of “ flexibility ”, and the european commission ’ s comments four weeks ago regarding its future interpretation of the fiscal rules give reason to fear for the binding effect of the rules. relying on fiscal rules alone will not help to overcome the euro area ’ s vulnerability to crises once and for all. on the contrary, additional steps are needed to strengthen the disciplining effect of capital markets on fiscal policy. in that sense, the principle of individual national responsibility ultimately means that governments, too, must be allowed to fail financially. 4. 3 making the financial system more resilient and effective sovereign default, however, is still a tricky issue where financial stability is concerned. making the financial system more resilient, and banks less vulnerable, is therefore the third item on the “ to do list ” to bring the euro area back on track. this, by the way, is not a challenge exclusive to the euro area, although it is particularly relevant there. in a comment piece published in the financial times about a year ago, tim harford wondered : “ why can ’ t banking be more like baking? ” referring to the great fire of london almost 350 years ago, he wrote : “ the last time a baker laid waste to the city was 1666 [ … ] ; bankers seem to be able to perform the trick more frequently. ” despite the similarity in spelling there are, of course, significant differences between those two lines of business which explain, for example, why we need a european banking union but not a baking union in terms of a single trade supervision for bread makers, say. systemic importance, the “ too big to fail ” issue, and information asymmetries are just a few of the special features that distinguish the financial sector from non - financial business areas. the financial crisis laid bare that banking regulation – or metaphorically speaking : the fire protection – had been insufficient. this was a key lesson learned from the crisis, and the regulations have been tightened over the past few years. however, the regulatory agenda has not been completed. in order to prevent too much business from being shifted from the regulated banking sector to the unregulated shadow banking sector, we need to adequately regulate the latter as well. as i have already said, financial reform is of particular relevance for the euro area – the financial system turned out to be the achilles ’ heel of monetary union. the introduction of