the future. however, we are not done yet. recently, a government - appointed commission on systemically important financial institutions recommended, inter alia, a special capital surcharge for danish sifi ’ s. the surcharge varies between 1 and 3. 5 per cent of risk - weighted assets. we would expect the total capital charges for our sifi ’ s to be by and large at the level set in peer countries with similarly sized banking sectors. our recommendation is therefore to implement the recommendations of this committee ( in which we took part ) and strengthen capital requirements without delay. to quickly clarify the regulatory requirement for sifi ’ s has strong merits. arguments, if any, for a mediocre capitalization of banks are weak and not persuasive. as a point of departure, the risk of and return to assets of a bank are not related to the composition of liabilities. higher capital should therefore not have much of an impact for its overall funding costs. to the extent this would not be the case, the main reason is likely to be that investors attribute a high probability of government intervention and bail - out in case a failure of a bank due to its low capital. implicit government guarantees are not a good substitute for well capitalized banks. they would be distortive, expensive for tax payers and leads to too much risk - taking. it is an investment worth taking even if funding costs and therefore lending costs would increase marginally due to higher capital requirements. financial crisis are very costly and it has a strong payoff to reduce their frequency. in the danish case the larger banks has already come a long way by increasing their capital positions, in some cases beyond the stipulated future regulatory requirements. benefits have also already materialized : as an example, the funding costs of danish banks relative to competitors have come down substantially over the last 1 – 2 years in parallel with better capital positions 3. banking union the european banking union is a major issue under discussion and development. we believe this makes a lot of sense. just a few remarks to make clear where we stand : denmark is a strong supporter of a harmonized approach to resolution where comprehensive and rules - based bail - in of bank creditors comes first and in center of any resolution of a troubled financial institution. of course a fiscal lending or capitalization backstop is needed and dealing with any sifi in distress will have to manage the systemic concerns. while there are euro area specificities related to banking, most issues of the

with bank supervision in the ncb and securities supervision in an independent standalone authority. insurance supervision is in many countries also located in a separate authority, but in other cases it is a department of the ministry of commerce or some other ministry. the second main stream is full unification of the supervision of banks, securities companies and insurance companies, all in one institution. the trend since some 15 years is that bank supervision in a number of countries has been moved outside the ncb and has been consolidated with the supervision over securities and insurance companies. however, the most common structure is still the traditional one 1. martin cihak and richard podpiera : imf working paper wp / 06 / 57 from 2006. but there are many variations. one is the combination of banking and securities supervision, which is logical due to the close relations between banking and securities activities. another is the combination of securities and insurance supervision with the aim to create a stronger authority with more resources and expertise. there are also some broader alternatives. the fsa in the uk performs supervision over a wide range of financial institutions, including brokers, pension funds and many more. its objectives also include financial sector consumer issues and even the promotion of london as a financial market place. all kinds of supervision and other activities related to the financial sector are placed under one roof. the netherlands, australia and others have followed an approach based on the purpose of the supervision. in these countries prudential supervision of banks and securities firms is conducted separately from the oversight of the conduct of the financial markets. the underlying rationale is that these activities are different. ensuring the safety and stability of banks and securities firms requires different regulations and skills from monitoring market conduct and taking enforcement actions. ireland, france, finland and others have retained bank supervision in an organisation closely related to the central bank but not in the central bank itself. in this way they benefit from the resources of the ncb and can make some cost savings, but avoid some of the arguments against locating supervision in the ncb itself. other countries, among them germany, have a stand - alone authority for financial regulation but the central bank maintains a role in the conduct of supervision by conducting most of the on - site inspections of banks. in this way the bundesbank benefits from its vast network of regional branch offices and its knowledge of the local economy. criteria for evaluating the organisation of supervision the choice of structure for supervision is not an end in itself but a means to achieve certain objectives. we should therefore