across countries and regions because of variations in economic and financial structures. 3 although the economic literature prior to the introduction of the euro emphasised the importance of asymmetric shocks, the cross - country variation in growth and inflation in one explanation of these catch - up effects is the so - called balassa - samuelson effect, see : balassa, b. ( 1964 ). “ the purchasing power parity doctrine : a reappraisal, ” journal of political economy 72, pp. 584 – 596 ; and samuelson, p. ( 1964 ). “ theoretical notes on trade problems, ” review of economics and statistics 46, pp. 145 – 154. for an application to the euro area, see : honohan, p. and p. r. lane ( 2003 ). “ divergent inflation rates in the euro area, ” economic policy 37, pp. 359 - 94. see : bayoumi, t. and b. eichengreen ( 1992 ). “ shocking aspects of european monetary unification, ” nber working paper no. 3949 ; obstfeld, m. and g. peri ( 1999 ), “ regional nonadjustment and fiscal policy : lessons for emu, ” nber working paper no 6431. an analysis of this issue made prior to the introduction of the euro is offered by : dornbusch, r., c. a. favero and f. giavazzi ( 1998 ). “ immediate challenges for the ecb : issues in formulating a single monetary policy, ” economic policy 26, pp. 25 – 64. bis central bankers ’ speeches recent years has been driven by differences in the impact and diffusion of a common shock, namely the financial crisis. the crisis has been a global shock that affected all countries in the euro area – and others, of course. it started with the emergence of market tensions in mid - 2007 associated with uncertainty about the valuation of us mortgage - backed securities and escalated sharply in september 2008 with the bankruptcy of lehman brothers. the varying impact of this shock on financial conditions across countries has led to a potential for dramatically different transmission of the single monetary policy stance determined by the ecb ’ s governing council. this is especially the case in the most recent phase of the crisis, when sovereign debt concerns and their interaction with the strength of bank balance sheets have been central. in those euro area countries where government and banking sector balance sheets remain sound and access to

banking sector. page 4 of 6 thirdly, the envisaged deposit insurance scheme would be funded by the banks themselves, and all registered banks would be obliged to contribute to the fund. the paper proposes two possible funding options that were considered at the time. however, the most cost - efficient funding mechanism is still being discussed with the banking sector, and the ultimate decision may well differ from the proposals in the paper. it is important that the deposit insurance scheme is funded in such a way that the cost to the banking sector does not exceed the financial stability benefits, and that there is sufficient funding available to make the deposit insurance scheme effective. it is also important to have emergency funding available in the event that the deposit insurance scheme experiences a funding shortfall. emergency funding arrangements should include prearranged and guaranteed sources of liquidity funding and be legislated. this is, however, subject to the proviso that such emergency funding is subsequently recovered from the remaining banks after the failure event. fourthly, the build - up of a fund is but one aspect of the deposit insurance scheme. equally important is the availability of accurate depositor information as well as it3 systems and mechanisms to enable the prompt payout of deposits, supported by a sound legal framework, effective operational controls, and a strong governance framework. there will be much work for both the deposit insurance scheme and the banks once the legislation is in place. in this regard, the international association of deposit insurers, of which south africa is currently an associate member, has developed a set of tried and tested core principles to guide us in the development of a world - class scheme. there are also some more detailed areas that will require further research and deliberation, for example how exactly pooled accounts should be treated and how the small cooperative financial institutions should fit into the deposit insurance scheme framework. these aspects are important and will receive special attention in the coming months, without delaying the legislative processes. we appreciate your interest in this important initiative as a major part of the success of the deposit insurance scheme will depend on the public ’ s awareness of the scheme and knowledge about how it works. enhancing such awareness will be an ongoing task of the 3 information technology page 5 of 6 deposit insurance scheme, in which the media will be our close allies. the workshop today is a good start. finally, we would like to remind you that there is also an opportunity to submit written comments on the deposit insurance scheme paper until 31 august 2017.