the scope for further improvements remains enormous. it is vital that this process gains momentum and extends its reach across institutions and countries. and it is equally important that the steps taken are not just a passing fashion but become a permanent element of a new business culture. * * * the upshot of this analysis is straightforward. the momentous transformation under way in the european financial industry holds the promise of unprecedented gains in efficiency and in the value of services provided to society. at the same time, it raises a number of serious challenges for authorities and market participants. to the extent that these challenges are especially severe in europe, by the same token, the opportunities and potential rewards are that much greater. there is much that the authorities can and should do to facilitate a speedy and orderly restructuring process in the european financial industry. ultimately, however, the key to lasting success for the banking industry is in the hands of market participants themselves. it lies in successfully marrying an innovative spirit with a rigorous risk management culture. in turn, this should be buttressed by heightened awareness of the pivotal role played by credit standing in the banking business, as a precondition for the lasting prosperity of the industry in the future.

gathering. if a cross - border banking group concentrates all its credit assessments in one country it will be difficult for the supervisor in another country to assess the risk of the bank in that country without efficient supervisory cooperation and exchange of information. further, if the bank puts all its liquidity management in a third country, extensive information sharing will be needed in order for any supervisor to get the full picture of the group ’ s total risks. in principle the parent bank – and therefore the parent bank ’ s supervisor – should have a full overview but in a crisis, positions may change quickly and thus complicate the collection of all relevant information. such extensive information sharing becomes acute in a crisis but is also necessary in the day - to - day supervision. a second challenge is that conflicts of interest multiply. banking problems can be very costly and the ultimate guarantee for financial stability can only be given by the government, since only the government has the power to tax. in most countries the deposit guarantee schemes are only able to finance the problem if it is confined to minor banks. for systemic problems, the government would have to intervene. with predominantly national banks, how this is done is fairly straight - forward. with the emergence of truly cross - border banks the question is how to share the burden. to what extent would the taxpayers in one country be willing to support the depositors in another country? and to what extent would the depositors in the second country be willing to rely on the potential future support of the taxpayers in the first country? a similar problem applies when a central bank considers providing emergency liquidity assistance to a cross - border bank. such funding is inherently risky. if not, the market would typically be able to provide the funding. such assistance is also likely to affect the entire banking group. what happens if a bank is systemically important in one smaller country but not in another perhaps larger country? the smaller country will probably have greater incentive to save the bank but may end up paying for the entire group, if the larger country refuses. also, there are conflicts of interest if the bank is reconstructed. any such reconstruction is risky and it is therefore uncertain whether the taxpayers would be willing to take these risks in another country. a third challenge is how to achieve joint assessments. in europe, there is an agreement to share views and assessments if there is a crisis. however in my opinion, that is not sufficient. in a crisis, most countries are likely to present assessments that support their national interests