additional burden sharing first. the hotly debated banking union is a good case in point. let me first take a step back and take a look at why the close link between banks and sovereigns has proved to be so problematic during this crisis. if many banks get into trouble at the same time, possibly due to the burst of a large asset bubble, financial stability as a whole is threatened. the state then often has no option but to step in if it wants to prevent a meltdown of the real economy. but such a rescue can place a huge burden on government finances – this is what happened in ireland, where the need to prop up the financial system pushed the deficit above 30 % of gdp in 2010. conversely, weak government positions can destabilise banks – directly through their exposure to sovereign bonds or indirectly through worsening macroeconomic conditions. that is also what we see right now. breaking the link between banks and sovereigns is vital to make the euro area more stable. a banking union can be a big step in that direction – but only if we harness the disciplinary forces of the market, not if we do away with them. core elements of a banking union therefore have to be, first, a comprehensive bail - in of bank creditors, and second, an adequate risk - weighting of sovereign bonds in banks ’ balance sheets. in order to minimise the risk that bank rescues pose to government finances, creditors have to be the first in line when it comes to bearing banks losses. implicit guarantees have to be removed as taxpayers ’ money can only be the last resort. by the same token, sovereign - bonds need to be adequately risk - weighted when it comes to the adequacy of capital buffers. riskier bonds have to become more expensive in terms of the amount of equity that they tie down, as is already the case with non - sovereign bonds. this serves two purposes : firstly, such surcharges should translate into lower demand and hence, larger spreads, which gives a disciplining signal to the respective sovereign. and, secondly, banks would become more resilient in cases of market turmoil. in addition, there should be caps on banks ’ maximum exposure to individual sovereign creditors, as is already the case with private creditors. bis central bankers ’ speeches such enhancements of the regulatory framework need to complement the envisaged european supervisory mechanism. in principle, this single european supervisor could help to prevent future crises by enforcing the same high standards irres

, there was a broad consensus that it would be in everyone ’ s best interest not only to preserve but indeed to strengthen cooperation with each other. to do justice to the global dimension of the crisis as well as to the growing importance of emerging market economies, the task of formulating a strong and coordinated response to the crisis was elevated to the level of the g20. the financial stability forum was superseded by the more influential financial stability board, which also had a much broader membership. the basel committee broadened its membership as well, inviting countries from the g20 to join – among them south africa. meanwhile, central banks across the globe provided each other with swap lines to ensure a sufficient supply of liquidity. bis central bankers ’ speeches since then, we have worked closely together to better understand what went wrong before and during the crisis, and to reform the regulatory and supervisory architecture accordingly. this has brought about yet another wave of changes to the environment we operate in. certainly, one of the defining changes was the emergence and growing importance of macro - prudential policy. we have come to understand that monetary policy and microprudential supervision alone are not sufficient to ensure macroeconomic financial stability. the consequence is a whole new additional perspective on the financial system, and we are still in the process of understanding this perspective, determining how it interacts with our other tasks as supervisors and central bankers, and how to best utilise the new macroprudential toolset at hand. here, we can learn from the experience of emerging market economies, some of which had been using macro - prudential tools long before the crisis of 2007. meanwhile, the micro - prudential perspective remains as relevant as ever. therefore, we have comprehensively revised and extended the basel accord over the last couple of years. the greater part of the work has been done, and basel iii is already being implemented by regulators across the globe. however, there is still some fine - tuning left to do, and in the basel committee i am working together with my colleague from the sarb to finalise basel iii by the end of this year. looking at all of these developments we can say that – less than a decade after the crisis erupted – central bankers and banking supervisors find themselves in a wholly new landscape few of us would have imagined just a couple of years ago. and while, as i have said, we are still in the process of fine - tuning and gradually implementing the new framework we have built,