too important to fail. public reaction to the crisis and the need to rebuild trust the huge cost of the financial crisis, both in terms of direct public support to banks and lost economic output has sadly fallen to tax payers, causing an understandable and justified public outcry. trust needs to be rebuilt between banks and the general public, and the role of internationally co - ordinated regulatory reforms is central in this process. also in banking not only gains but also losses must fall on the risk - takers. bis central bankers ’ speeches regulatory response to the crisis the problems in banking, as revealed by the crisis, can be summarized as excessive risktaking, leverage, complexity, inadequate capital, extensive interconnectedness, and very limited possibilities to resolve failed banks. in response to these problems, regulatory reforms have been focused on two crucial areas : capital adequacy and liquidity requirements, as in basel iii, and recovery and resolution, as in the commission ’ s proposal. these reforms can go a long way toward increasing loss absorbency, reducing incentives to take excessive risks and increase leverage, and reducing the social costs of bank failures and the need for implicit public guarantees. the high - level expert group was requested to consider whether there is a need for structural reforms of the eu banking sector or not and to make any relevant proposals as appropriate, with the objective of establishing a stable and efficient banking system serving the needs of citizens, the economy and the internal market. the proposals of the high - level expert group the group recommends a set of five measures that augment and complement the set of regulatory reforms already enacted or proposed by the eu, the basel committee and national governments. 1. proprietary trading and other high risk trading activities should be assigned to a separate legal entity if the activities to be separated amount to a significant share of a bank ’ s business and are above a certain threshold. this would ensure that trading activities beyond the threshold are carried out on a stand - alone basis and separately from the deposit bank. as a consequence, deposits, and the explicit and implicit guarantee they carry, would no longer directly support risky trading activities. the long - standing universal banking model in europe would, however, remain untouched, since the separated activities can be carried out in the same banking group. hence, banks ’ ability to provide a wide range of financial services to their customers would be maintained. within the group, some members expressed a preference for a combination of measures : imposing a non - risk - weighted

capital buffer for trading activities and leaving the separation of activities conditional on supervisory approval of a recovery and resolution plan, rather than a mandatory separation of banking activities. both basic alternatives and their motivation are presented in the report. 2. second, effective and realistic recovery and resolution plans must be drawn up and maintained by the banks, as proposed in the commission ’ s bank recovery and resolution directive. the resolution authority should request a wider separation than the considered mandatory separation above if this is deemed necessary to ensure resolvability and operational continuity of critical functions. 3. the use of designated bail - in instruments is strongly supported by the group. the position of bail - in instruments within the hierarchy of debt commitments in a bank ’ s balance sheet must be clear so that investors know the eventual treatment in case of resolution. banks should build up a sufficiently large layer of “ bail - inable ” debt. such debt ( or an equivalent amount of equity ) would increase the overall loss - absorptive capacity, decrease risk - taking incentives, and improve transparency and the pricing of risk. 4. the group proposes to apply more robust risk weights in the determination of minimum capital standards and more consistent treatment of risk in internal models. once the basel committee has concluded its review of the trading book, the commission should assess whether the results would be sufficient to cover the risks of both deposit banks and trading entities in europe. also, the treatment of real estate lending within the capital requirements framework should be reconsidered, as well as maximum loan - to - value ( and / or loan - to2 bis central bankers ’ speeches income ) ratios included in the instruments available for micro - and macro - prudential supervision. 5. finally, the group considers that it is necessary to augment existing corporate governance reforms by specific measures to 1 ) strengthen boards and management ; 2 ) promote the risk management function ; 3 ) rein in compensation for bank management and staff ; 4 ) improve risk disclosure, and 5 ) strengthen sanctioning powers. bis central bankers ’ speeches