we want to prevent people from drawing the wrong conclusions from partial or inaccurate results. publication of the final results is the only approach that makes sense. constant reports on the status quo are of little value. however, a bank ’ s business model will also be accorded great significance in a dynamic stress test, which will follow the rather static balance sheet assessment. the main promise of euro area policy - makers is that taxpayers will no longer have to foot the bill for ailing banks. some politicians say no more taxpayers ’ money will flow at all. that seems very optimistic to me, but i am not a politician. it will be our task to minimise the likelihood that banks run into difficulties in the first place. the policy - makers ’ argument is that there should be no bail - out in future, but rather a bail - in. but these rules do not take effect until 2018. what will happen in the meantime? for the interim period the commission has drawn up rules for national state aid, which also follow the principle of bail - in. besides, the european parliament is doing all it can to advance the resolution rules governing the bail - in. in addition, individual countries may bring these forward independently. the bank resolution fund should also bear the costs of resolving banks. but this fund, which should be financed by banks ’ contributions, so far only exists on paper. the ecb and the eu commission have suggested that the european stability mechanism ( esm ) crisis fund might provide a loan. does that mean taxpayers may end up paying for bank crises after all? a credit line is conceivable ; it would give security. however, that should certainly not be a permanent loan : it may only be interim financing that will not cost taxpayers anything in the long run. the credit should be extended on market terms ; that might even be a good deal for taxpayers. if it is such a good deal, why can ’ t other funding sources be found in the market? that option is also contained in the commission ’ s proposal. if the esm provides a credit line, the esm rules would have to be changed. in germany that would require parliamentary approval, in other countries that would not be necessarily be the case. a final question on international monetary policy. in janet yellen, the us federal reserve will have a chairperson who is known as a “ dove ” and who will probably pursue an accommodative monetary policy for some time to come. are you pleased that you

jaime caruana : overview of basel ii and its reflections on financial stability speech by mr jaime caruana, governor of the bank of spain and chairman of the basel committee on banking supervision, at the international conference on financial stability and implications of basel ii, central bank of the republic of turkey, istanbul, 16 may 2005. * * * introduction and overview thank you, governor serdengecti, for your kind words of introduction and your opening remarks on what promises to be a timely and interesting conference. i am honoured to have the opportunity to share with you some thoughts on two related topics that are near and dear : financial stability and the basel ii capital framework. as i will be discussing this morning, the financial sector and banking supervisors are in the midst of a period of great change. change and growth must be second nature to this great city on the bosphorus, where the remains of the roman, byzantine, and ottoman empires reside within a modern, forward - looking city. istanbul has thrived over the centuries in the face of constant evolution, and today serves as a bridge between europe and asia, east and west, ancient and modern. of course, the challenges of basel ii cannot truly compare to the development of a city with almost 3, 000 years of history, but certainly istanbul seems to me a very appropriate place in which to discuss the role of banking supervisors in a rapidly changing world. my talk this morning will address several issues. first, i will talk about why the basel committee developed the basel ii capital framework and what it intends to accomplish. second, i will share some thoughts on how prudential banking supervision contributes to the stability of the financial system. next, i will discuss how i see basel ii contributing to financial system stability. finally, i will offer some thoughts on steps countries can take in preparation for adopting basel ii. but let me advance the main conclusion of my presentation : in a nutshell, i think that the new capital framework represents a significant step towards achieving a more comprehensive and risk sensitive supervisory approach. basel ii is about much more than just setting better quantitative minimum capital requirements. it is about establishing incentive - based approaches to risk and capital adequacy management, within a comprehensive framework of three mutually - supporting pillars. in my view, the combination of better risk management, a stronger capital structure and improved transparency standards in the banking system can significantly improve financial stability. why basel ii? let me begin with an overview of the basel ii capital