and a policy component. the analytical part focuses on identifying, measuring and assessing the impact of potentially systemic risks, while the policy part entails the calibration of policy instruments that could be implemented to address the identified risks or mitigate their consequences. more specifically, the first task of the esrb will be to identify systemic risks. this will require a broad and deep information basis, aided by a wide range of tools to process the relevant data. important ingredients for the analysis include market intelligence, rigorous monitoring of financial stability indicators and financial market and economic developments at large. it is important at this initial stage to cast the net as wide as possible to ensure that no risk is overlooked. this type of analysis could be supported by early warning models and indicators based on current data on financial or macro variables in order to identify early on where imbalances may be building up. its second task will be to assess the severity of the risks identified and to evaluate the ability of the financial system to absorb shocks. in this context, macro stress - testing models can be used to assess the resilience of the financial system, as can contagion and spillover analysis to evaluate propagation mechanisms and their potential impact on the financial sector or the real economy. finally, the esrb will use the outcome of the risk assessment for possible risk warnings or policy recommendations, which will need to be concrete and well targeted. the esrb will be in a good position to perform all of these tasks and to address in a timely fashion potential systemic risks, such as those related to the rapid expansion in foreign currency lending to unhedged borrowers in the cesee region. addressing the problem at the eu level will allow different measures to be implemented on a consolidated basis, thus addressing all of the relevant financial sector players active in the region, ensuring that macro - prudential policy across the eu is consistent and minimising cross - border and crosssectoral policy circumvention. in short, the establishment of the esrb will introduce a new policy function at the eu level with great potential for enhancing the ability of european and national authorities to safeguard the stability of the eu financial system as a whole. it is recognised that the design and implementation of this new eu macro - prudential policy function pose a considerable challenge. however, with the necessary preparations, which are currently underway in close cooperation with all involved parties, the esrb is assured a smooth start in 2011. ladies and gentlemen, let me conclude

minimum level of high quality liquid assets to withstand severe stress over a one month period and a long - term measure ( net stable funding ratio ) designed to ensure that the maturity structure of assets and liabilities are better matched, requiring banks to fund long - term assets with more stable types of liability. work is underway on the important details and precise calibration of these ratios. all of these new measures, which will be introduced over the agreed transition period, should not have any unduly severe implications for the national banking system and will thus support the nascent economic recovery. further work ahead although the agreement on basel iii constitutes a robust conceptual framework, much remains to be done. aside from the ongoing work concerning the introduction of countercyclical buffers, more work also needs to be carried out on other important elements of the framework. in this respect, the potential implications of the leverage ratio and the liquidity risk framework still need to be assessed. an observation period has therefore been agreed upon in order to carefully monitor the potential implications for certain banking sectors, business models and the real economy. full use of the observation period should be made to identify any such implications and to prevent the new measures from having any unintended consequences. furthermore, since the leverage ratio is largely based on accounting information, the accounting standard - setters should strengthen their efforts to eliminate existing accounting differences. this is essential in order to ensure a level playing field. work is also still underway on ensuring the loss - absorbency of all regulatory capital at the point of non - viability. the basel committee has also decided at the level of governors and heads of supervision that systemically important financial institutions will be required to have a higher loss absorbency capacity than the other institutions that are subject to basel iii. to achieve this, banks would be permitted to use new instruments such as “ contingent capital ” ( coco ) or bail - in bonds, which raises some issues. first, on a general level it is necessary to assess whether these instruments can really provide a feasible funding alternative and foster a robust investor response. if this is deemed the case, the precise features of these instruments will need to be determined. key design features include the event that would trigger the conversion of the instrument, as well as the conversion price and ratio. i should like to stress that a strengthened regulatory framework is necessary, but consistent implementation and application of basel iii at the global level is of the essence to ensure a level playing field and to avoid regulatory arbit