tax treatment of these instruments – which have now been cleared up – were one of the reasons why german banks were so slow to issue such bonds. in addition, german companies legislation has thus far not explicitly provided for mandatory convertible instruments where the right to convert lies with the issuer. the 2014 draft act amending the companies act, which is currently making its way through the legislative process, will make it legal here in germany, too, to issue coco bonds, which would then convert to equity shares. banks ’ growing need for capital could be precisely the catalyst that might increase the importance of coco bomds in germany, too – which is all the more reason to be careful. attractive as these instruments may be to banks and investors, we must remember that these are very complex capital instruments, especially since they are governed by such disparate areas of the law as companies law, debt law, tax law and supervisory law. there is a risk that retail investors in particular, mesmerised by the relatively high returns on coco bonds, could lose sight of the risks involved. banks are aware of the danger : deutsche bank, for instance, issued its coco bonds in denominations of €100, 000 in order to restrict entry into coco bond business to institutional and professional investors. in the united kingdom, the sale and distribution of coco bonds to retail investors is even prohibited by law. bis central bankers ’ speeches now is the time for supervisors to develop a code of best practices for issuing coco bonds. while taking national legal systems into account, we supervisors need to strive for as much standardisation as possible in order to achieve convergence in the eu. it is important, though, that coco bonds actually be used to absorb the losses that the issuing banks could potentially incur. this challenge has been recognised by eu lawmakers and supervisors. the key tasks facing supervisors now are to observe the market very closely and to press ahead with efforts to improve the legal framework for coco bonds. once these tasks have been accomplished, coco bonds can be a useful addition to banks ’ capital structure. by helping to strengthen the capital base, they will make an added contribution to enhancing banks ’ resilience to future crises. bis central bankers ’ speeches

group, inc. ( see ben s. bernanke ( 2010 ), letter to gene l. dodaro, january 19 ). the federal reserve would support legislation authorizing a review by the gao of the federal reserve ’ s operations of its facilities created under emergency authorities : the asset - backed commercial paper money market mutual fund liquidity facility, the commercial paper funding facility, the money market investor funding facility, the primary dealer credit facility, the term asset - backed securities loan facility, and the term securities lending facility. sources of funding are not available. the federal reserve ’ s ability to inject liquidity into the financial system is critical for preserving financial stability and for supporting depositories ’ key role in meeting the ongoing credit needs of firms and households. regulatory reform strengthening our financial regulatory system is essential for the long - term economic stability of the nation. among the lessons of the crisis are the crucial importance of macroprudential regulation – that is, regulation and supervision aimed at addressing risks to the financial system as a whole – and the need for effective consolidated supervision of every financial institution that is so large or interconnected that its failure could threaten the functioning of the entire financial system. the federal reserve strongly supports the congress ’ s ongoing efforts to achieve comprehensive financial reform. in the meantime, to strengthen the federal reserve ’ s oversight of banking organizations, we have been conducting an intensive self - examination of our regulatory and supervisory responsibilities and have been actively implementing improvements. for example, the federal reserve has been playing a key role in international efforts to toughen capital and liquidity requirements for financial institutions, particularly systemically critical firms, and we have been taking the lead in ensuring that compensation structures at banking organizations provide appropriate incentives without encouraging excessive risk - taking. 7 the federal reserve is also making fundamental changes in its supervision of large, complex bank holding companies, both to improve the effectiveness of consolidated supervision and to incorporate a macroprudential perspective that goes beyond the traditional focus on safety and soundness of individual institutions. we are overhauling our supervisory framework and procedures to improve coordination within our own supervisory staff and with other supervisory agencies and to facilitate more - integrated assessments of risks within each holding company and across groups of companies. last spring the federal reserve led the successful supervisory capital assessment program, popularly known as the bank stress tests. an important lesson of that program was that combining on - site bank examinations with a suite of quantitative and analytical tools can greatly improve comparability of the results and better identify potential