stricter requirements. third, where financial stability concerns that triggered the application of more stringent measures cease to exist, the quantitative ratios and limits should return to a harmonised level set by the regulation. 3. towards a pan - european approach to the resolution of systemic financial institutions the fsb has adopted a dual approach to deal with the so - called systemically important financial institutions ( sifis ), namely by targeting both tighter loss absorbency requirements as well as improving the resolution technology available to authorities. a milestone in this area is the international framework for global systemically important banks agreed by the fsb and the basel committee on banking supervision. the framework proposes a progressive capital surcharge, depending on a bank ’ s systemic importance. this surcharge system is necessary to provide banks with correct incentives to decrease over time their own systemic footprint. even more crucial, and much less advanced, is the resolution approach to the “ too big to fail ” problem. during the financial crisis, the failure of a large cross - border banking group was not a credible option. as a result, governments had to resort to massive taxpayer - sponsored bailouts, in some cases even the ring - fencing of banks ’ assets within national jurisdictions. this was a clear sign of the lack of adequate resolution powers, which would have minimised disruption to the financial system as well as the burden on public budgets. opinion of the european central bank of 25 january 2012 on a proposal for a directive on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and a proposal for a regulation on prudential requirements for credit institutions and investment firms at http : / / www. ecb. europa. eu / ecb / legal / pdf / en _ con _ 2011 _ 5 _ f. pdf bis central bankers ’ speeches this shortcoming was realised both globally and in the eu. last november in cannes, the g20 endorsed the fsb ’ s new international standards called “ key attributes of effective resolution regimes for financial institutions ”. on the basis of this document, the european commission is about to finalise its legislative proposals for an eu framework for bank recovery and resolution. the consistent implementation of these key attributes at international level is clearly a priority for the near future. how will all this work in practice for large cross - border banks in the eu ’ s single market? the commission ’ s proposals – which i fully support – will provide a common language for domestic authorities for

as its agents. certainly, a lot needs to be done to set up an integrated european resolution regime like this. but it is not something for the distant future. recent events have underscored the need to be more ambitious – now. during the recent financial and sovereign crisis in europe, we have seen the pernicious interaction between weaknesses in the financial sector and fiscal imbalances. many policy initiatives have been put in place to restore confidence in european banks, despite concerns over their sovereigns. low short - term interest rates in the euro area should in the short term help to prevent a disorderly adjustment of balance sheets and support the profitability of financial institutions, but they may weaken the incentives for repairing balance sheets in the first place. a pan - european financing arrangement would be one of the most effective measures to break the link between the creditworthiness of banks and that of their sovereigns. its establishment would also remove the need for ad hoc policy measures in response to crises, such as the one - off eu - wide capital exercise conducted by the eba, which incorporated market valuations of sovereign exposures in times of stress. i bis central bankers ’ speeches am also convinced that such an integrated resolution framework is likely to be the most suitable for the industry as well, since it ensures a level playing field and that the relevant rules are consistent throughout the eu. 4. otc derivatives, market infrastructures, and the mifid review let me now briefly comment on something that could be considered the “ plumbing ” of the financial markets : namely, over - the - counter ( otc ) derivatives and market infrastructure. the reform of otc derivatives markets has been a key part of the work to enhance the financial system ’ s resilience since the global financial crisis. indeed, the limited development of financial market infrastructures, weaknesses in bilateral risk management and the lack of transparency regarding counterparty exposures in otc derivatives markets contributed to the financial market turbulence, as the cases of bear stearns, lehman brothers and aig have painfully demonstrated. these cases also illustrated the potential systemic repercussions of malfunctioning otc derivatives markets, particularly in view of their large size and close linkages with the underlying cash markets. to enhance the functioning of otc derivatives markets, the g20 agreed that standardised otc derivatives contracts should be traded on exchanges or electronic trading platforms and cleared through central counterparties by the end of 2012 ; in addition, otc derivative contracts