, it is likely that additional funding from asia and elsewhere might be needed to ensure that the region ’ s economic expansion is not unnecessarily hampered. in europe, we are currently pushing towards a capital markets union that aims at both diversifying funding sources for the real economy and boosting risk sharing among investors. is it thus a blueprint for asia? i don ’ t think so, at least not one on one. however, i firmly believe that the lessons we learn from this project may be of interest for the asian economies as well. bis central bankers ’ speeches i have highlighted some components of the capital markets union which i think are particularly important. in a nutshell, the capital markets union is about fostering stable and reliable financial markets by establishing an appropriate level of transparency for financial products and comparable legal standards. that kind of environment will help attract investors to invest in the european real economy and help european corporations diversify their funding sources. the same should hold true for the asian real economy in general, and for infrastructure projects in particular. indeed, there is a long way to go until we have achieved an optimal funding structure. but as confucius once said, “ a journey of a thousand miles begins with a single step ”. ladies and gentlemen, let us take these steps together to build a sustainable financial system that is fit for the 21st century. thank you. bis central bankers ’ speeches

and the application of conservative conditions whenever refinanced credits are negotiated, are all integral elements of the general lending standards that banks should observe and keep up to date as part of their credit risk management policy. moreover, rapid credit growth usually has a negative impact on lending standards which, down the road, translates into increased needs for provisions, as non - performing loans start to pop up. we saw this clearly, and on a large scale, during the lastest banking crisis in spain1 and elsewhere, and it is our responsibility to remain vigilant to prevent this from recurring with the appropriate supervisory tools. regarding collateral valuation, it cannot be ignored that provisions apply to the uncollateralised part of each loan. consequently, guarantees pledged to each loan represent a central element in the new approach for measuring credit risk. to fulfill their role, guarantees have to be effective, that is to say, they need to be validated as a mitigant of credit risk. for this to be true they must subject to strict, rigorous and verifiable valuation criteria. to facilitate this last point, banks should have procedures for the valuation of the collateral with updated information based on revised appraisals adapted to changes in the macroeconomic situation and reliable analysis of trends of market prices, particularly for real estate collateral. finally, estimates of credit losses and provisions should rely on credit risk models developed on a sufficiently quantitative basis where prudence should be reinforced. in any case, see g. jimenez and j. saurina : “ credit cycles, credit risk, and prudential regulation ”, international journal of central banking, 2006. 4 / 7 estimates should be based on credible assumptions that are sufficiently justified and consistent over time. the methodology used must be readily understandable and the results intuitive. also, consistency should be an objective. banks should establish procedures for periodically testing the reliability and consistency of the results obtained. the periodic testing of the calculation of provisions should be done regularly through, for example, back - testing the estimated credit losses with those actually observed in finalised credit operations. for a successful implementation of the new loss - measure approach, banks ’ forecasting capacity in respect of economic downturns and anticipation of significant deterioration of both credit standards and credit risk are key. as such, banks should strive to apply and use the appropriate procedures to ensure the timely determination of future significant increases in credit risk and, more generally, they should be able to properly adjust their models and predictions to