in a context of high integration and complex interconnections between financial institutions, instability spread rapidly across markets and economies, leading to the most serious global financial crisis of the last 80 years. in the european union, the crisis was exacerbated by a double - dip recession, which hindered our recovery period and revealed as well the weakness of the institutional framework of the euro area. technological change. in the 21st century we have seen an explosion of technological changes that are reshaping the global economy : internet, e - commerce, mobile phones, artificial intelligence and big data. in the financial sector the new fintech companies are challenging the traditional banking business models and providing services in all functions of finance, from payment systems, to saving, borrowing, managing risks and financial advice. this has important implications for productivity and competitiveness and for further deepening the interconnectedness of the global economy. ii. central banks have reacted to the global financial crisis in three main ways : highly expansionary and unconventional monetary policy. central banks were already applying near - zero interest rates in 2008. but interest rate policy was not effective under the “ zero - lower bound ”, which is basically the keynesian liquidity trap at near - zero interest rates. accordingly, it was necessary to develop new policy instruments, the so - called “ unconventional monetary policy ”, mainly quantitative easing and forward guidance. the result has been a huge increase in central bank balance sheets. in terms of gdp, the approximate size of the balance sheet of the central banks before the crisis was 12 % in the eurosystem, 5 % in the us and 20 % in japan. these numbers have increased between four and five times, 3 / 6 and are now at around 40 % in the eurosystem, around 4. 4 trillion euro, 24 % in the us ( 4. 4 trillion us dollars ), and almost 100 % of gdp in japan ( 5. 2 trillion yen ). tighter financial regulation and supervision. pre - crisis regulation was based on microprudential regulation and supervision. the crisis revealed this framework to be no longer effective to ensure financial stability in the new context of globalised and highly interconnected financial markets. the response has been centred on three main layers : - strengthening of the microprudential framework with higher capital requirements ( basel iii ) and new resolution frameworks in most jurisdictions ; the introduction of a separate and tighter framework for systemically important financial institutions the development of a new macroprudential

jaime caruana : the future of banking supervision in europe address by mr jaime caruana, governor of the bank of spain and chairman of the basel committee on banking supervision, at the conference “ supervision of international banks : is a bank crisis still possible in europe? ” – european banking federation ( fbe ), brussels, 28 october 2005. * * * introduction first of all, i would like to thank michel pebereau and the european banking federation for inviting me here today to participate in this conference on important issues relating to the future of banking supervision in europe. usually i speak from the perspective of the basel committee on banking supervision. today, however, i will mainly take the viewpoint of one of the central banks of the eurosystem with banking supervisory responsibilities. the subject of this debate is particularly timely, given the european commission ’ s current initiative to define financial services policy for the eu over the next five years, to which i understand the fbe has been an active contributor. i would like to use my time this morning to suggest a number of principles that i believe could help in addressing the key challenges for european banking supervision structures in the coming years, and also to reflect on some concrete steps to build a european framework fit to meet these challenges. what is the main issue we face? there is no need for me to explain the dichotomy that arises when we have, on one hand, an industry that is becoming increasingly internationalised in nature and, on the other, a supervisory framework that remains predominantly based on national responsibilities and accountabilities. in a context where banking groups increasingly take decisions and manage risks on a global basis, inconsistencies or differences in the regulation and supervision across the countries in which they are active may create compliance costs and inefficiencies. furthermore, adverse developments in one bank are more likely to have financial stability implications for several countries. these issues are certainly not exclusive to the eu. but the existence of the eu project adds an extra dimension, which brings challenges, responsibilities and also opportunities. progress has been made in building the single market in financial services, but we are not there yet. in some segments of the financial markets, such as retail banking, there is a long way to go to achieve a fully integrated market. and recent experiences in relation to some cross - border acquisitions seem hardly compatible with the spirit of the single market. we face, therefore, several challenges : to safeguard the efficiency, effectiveness and consistency of supervisory