years ago was a painful lesson of what improper supervision and regulation of the financial sector can lead to. the reaction was an unprecedented regulatory effort from global standard setters such as the basel committee and financial stability board : more and better capital, liquidity requirements, central clearing when possible, and renewed focus on systemic risk with macro prudential supervision. and if things went wrong despite all this, institutions should have an option for resolution without recourse to public money. the covid pandemic was the first real test of the resilience this new regulation had built up in the banks. as the covid pandemic struck, we needed to introduce a number of measures to address the potential for liquidity shortfalls in the financial system and to take regulatory measures to help banks cope with the situation. for example, in 1 / 3 bis - central bankers'speeches sweden, we had built up resilience by raising the countercyclical capital buffer to 2. 5 per cent over a number of years. at the onset of the pandemic, we lowered this buffer to 0 per cent, freeing up a significant amount of capital. this leads me to my first point, the importance of usable capital buffers. this allowed the banks to continue to lend to corporates and households in spite of the fact that we were in a crisis situation. this time, the banks were part of the solution and not part of the problem as in the global financial crisis. this shows the importance of usable capital. another lesson from the covid pandemic was the importance of well - functioning bond markets. in sweden, banks have traditionally provided the bulk of credit provision to the private sector. in recent years, the market for non - financial corporate bonds in swedish kronor has grown in size. this means that we have two engines for credit provision : banks and financial markets. one way to look at this is to consider a twin - engine approach where we can use both engines and be less reliant on just one of them to foster economic growth. this also helps to spread the risks in the system. as the pandemic struck, it was the market - based engine that stuttered while the banks were able to continue to uphold the credit supply. a large outflow from some mutual funds followed as concerned investors wanted to make sure that their money was safe. it was clear that the swedish corporate bond market did not have the depth and liquidity to handle the turbulence that followed

, debt sustainability would be much less of a concern to the rating agencies and the efsf could look forward to upside in the recovery by being the owner of two banks with a substantial national franchise. although the irish case has been exceptionally severe, it is evident that the same formula could be relevant to other countries. the greek debt restructure brought most of greece ’ s banks under water, and they are being recapitalised by injection of efsf bonds. but once again the government – in this case the greek government – is assuming the corresponding debt, and acquiring or increasing its ownership stakes in the banks. if there ’ s any european government that doesn ’ t need any more debt, it ’ s the greek one. another missed opportunity, one might say, in the design of restructuring and resolution policies for european banking. while the banking losses for uk banks were on a smaller scale relative to the size and fiscal capacity of the uk economy, looking ahead, policymakers in countries even as large and bis central bankers ’ speeches prosperous as the uk look with some trepidation at the scale of their largest financial institutions – together with the fact that these institutions hunt in packs and do not represent a diversified pool of risks. one solution is to shrink the institutions and distance their liabilities from the state. this is definitely needed. in addition, though, especially looking to future risks, a complementary strategy, relying for bank recapitalisation where needed not on one sovereign but on the pooled fiscal resources of a larger and more diversified entity such as the eu needs to be developed. it ’ s not hard to see, though, that to get such a degree of cross - border public financial engineering working smoothly at the european level requires an institutional structure that is both more comprehensive and more streamlined than exists today. it is clearly something much more ambitious than has ever been attempted by the imf and world bank. a banking union in europe as you may have guessed, i have used a less familiar route to back into what is increasingly becoming a conventional line of argument, namely that we have found that a monetary union needs to be accompanied by stronger arrangements to ensure what might be called a banking union. in simple terms, the main elements of a banking union would be a degree of ( i ) centralised bank regulation, licensing and supervision as well as ( ii ) central responsibility for resolution and for depositor protection and any public sector solvency support. it ’ s not just the spillover effects