the framework of supervisory cooperation. v now, a few words on how to act in a crisis. each crisis is different and therefore calls for flexibility in action. what is at stake is safeguarding the stability and efficiency of a financial system and, in some cases, also the use of taxpayers ’ money. the existing agreements take account of these factors. more extensive initiatives, going as far as to prescribe courses of action or even automatic mechanisms in the use of supervisory instruments, would miss the mark altogether. a critical view should also be taken of ex ante “ burden sharing ” agreements in the event of a crossborder crisis. these are ideas of a more theoretical nature whose practical implementation would pose severe problems. cost allocation rules would also involve setting certain steps in the decision - making process. such ex ante agreements could lead to a far - reaching loss of political sovereignty and to interference in national budgetary sovereignty. in addition, the costs of crisis management are largely the result of discretionary decisions taken during the crisis itself, such as on whether to save or liquidate a company. it is therefore not possible to calculate the costs ex ante, and even an ex post calculation would pose problems. vi the conclusion we may draw is that the european cooperation - based supervisory system is currently a politically optimum structure under the existing conditions, by which i mean the absence of a political union. supervision in europe is well set up, cooperation is working efficiently and will be stepped up further. cooperation is the key! cooperation between supervisory authorities, in other words : the supervisory colleges for the major banking groups, but also through common training, bears considerable potential for enhancing supervisory practice and reducing the costs of supervision to institutions. in a world of increasingly integrated markets, the institutions rightly expect this from us. however, the integration of markets and the harmonisation of supervisory rules and practices are not goals in themselves. integration should not be equated with uniform products and terms. variety in the players ’ behaviour, products and markets is the way to address customer needs which are characterised by differences in cultures. it can also contribute to financial stability. everyone doing the same thing or providing exactly the same products would increase the risk of “ herding behaviour ”, which would potentially have undesirable effects for stability. also, the process of financial market integration should be driven by the markets and not by regulators. as i see it, excessive harmonisation or even complete standardisation of supervisory rules and practices would go

edgar meister : european financial supervision – next steps lecture by mr edgar meister, member of the executive board of the deutsche bundesbank, at the “ kangaroo group breakfast debate ”, european parliament, brussels, 29 march 2007. * * * i ladies and gentlemen i wish to begin by thanking the hosts for inviting me to today ’ s “ working breakfast ”. it is a particular pleasure for me to share with you some of my thoughts on the future of financial supervision in europe. the prime objective for financial supervisors is to maintain the efficiency and stability of the financial system. this is already a challenge at the national level and is increasingly becoming one in a european context as well. the key question is “ what should be the optimum design of financial market regulation and supervision? ” there is no easy answer to this question. however, there are some criteria we can list. 1. supervision should be risk - oriented. 2. priority should be given to principle - based rules over detailed regulations for every specific case. 3. supervisors and their rules should place as minor a burden as possible on institutions – but still be effective to achieve the objectives pursued. 4. when developing prudential rules, supervisors should consult with credit institutions at an early stage in order to incorporate market expertise and to define rules which are consistent with market conditions. 5. given open banking markets, prudential rules should be applicable throughout europe and worldwide. ii it is, of course, difficult to put these criteria into practice perfectly at all times. however, we have already achieved much in europe. let me cite some examples. one is introduction of the lamfalussy procedure : a precondition for speeding up and enhancing the efficiency of the legislative process in europe by involving supervisory experts and the financial industry. measures aiming at “ better regulation ” recently tackled by the commission are another important and proper step. these measures cover improving the legislative process, open and transparent consultations, impact assessments which include financial stability aspects, improved monitoring of implementation, better enforcement of community law and ex post evaluations. this approach is widely supported by supervisors and the industry alike. “ better regulation ”, in my opinion, needs to include granting a “ regulatory pause ”. considerable efforts have been made in recent years to create the regulatory environment for an integrated european capital and financial services market. however, these measures – especially the implementation of basel ii and the crd – have placed, and are still placing, a substantial burden on the financial industry