arrangements for the recovery or potential resolution of central counterparties in a crisis situation can be put in place. we should not wait for a potential emergency to remind us of the urgency of this problem. it would be too late to address it then, as the cross - border upheaval in the banking sector in the context of the 2008 – 09 financial crises amply demonstrated. and the consequences in the case of central counterparties would be even more devastating than what we have seen in the banking sector. cross - border application inconsistencies finally, let me briefly mention another area of concern : the cross - border application of different rules. i leave entirely aside the question of whether or not we are finished with the bis central bankers ’ speeches standard setting. there are areas where additional work would be beneficial : think of collateral transformation and settlement cycles, and of the success of target2 - securities in fostering harmonisation around t + 2 settlement in europe. but this would require another conference and i will focus here on the application of existing rules. it is clear to all of us that due to the global nature of the otc derivatives markets, international coordination is absolutely indispensable to avoid inconsistencies, gaps or overlaps, or conflicting rules. at a more general level, the lack of a level playing field in the enforcement of the new financial standards has a potential to fragment the global financial system and to lead to a suboptimal allocation of capital of liquidity and to overconsumption of scarce resources, such as the safe assets used as collateral by financial market participants. otc derivatives are a case in point. i therefore strongly welcome the recent agreement reached between the european commission and the us commodity futures trading commission ( cftc ) on a common path forward regarding a number of measures on how to approach cross - border issues. in this context, the notion of substituted compliance is a useful tool, as it will help to reduce the risk of duplication and potential frictions of rules. clearly, convergence at a very granular level may not be achieved. it may not even be desirable, as specific differences may reflect the specific institutional and regulatory frameworks in the jurisdictions concerned. nevertheless, it needs to be ensured that the outcome in all material aspects is similar. a key objective of the g20 mandate for otc derivatives reform was to ensure effective systemic risk reduction in these markets. it is unlikely that we will achieve this objective by converging on the lowest common

there is no doubt of the scale of the challenge that the crisis has posed for all advanced economies, including the us and japan, there is also no doubt that we have taken significant measures in responding to that challenge. but much more needs to be done. i. financial and economic reform prompted by the crisis let me begin with financial regulation. the crisis calls for a comprehensive agenda of reform of virtually every aspect of the global financial system. we must control the forces that led the system to become absorbed with itself and ensure instead that it serves the real economy. and we must be assured that the financial system provides a sustainable contribution to economic growth. at this point, we have achieved a blueprint of more stringent bank regulations, which includes more loss - absorbing capital, better risk coverage and limitations on undue leverage. countercyclical capital buffers are intended to lower pro - cyclicality. the oversight of financial institutions, financial markets and market infrastructure are being strengthened, and the organisational structure of financial supervision is being overhauled. but much remains to be done. the most important aspect is implementation of these reforms. moreover, the issue of systemically important financial institutions still requires decisions, and oversight of financial markets must be strengthened. we cannot afford the consequences of limited transparency and excessive influence of dominant players and oligopolistic market structures. bis central bankers ’ speeches the new european system of financial supervision is an important step forward. the three new european authorities – for banking, for insurance and occupational pensions, and for securities and markets – are strengthening our focus on interlinkages and spillovers within the eu ’ s financial system. and the european systemic risk board is developing the tools it needs to issue warnings and make recommendations for action on potential future sources of systemic risk. inattention to financial risk was the prime cause of the crisis. inattention to macroeconomic risk – and the many ways in which such risk interacts with fragile fiscal structures – prepared the ground for the budgetary troubles that some euro area countries are facing today. this brings me to reform of economic governance. the eu is about to introduce surveillance focused on imbalances and divergences in competitiveness across the euro area. this is long overdue. since 2005 within the eurogroup and – shortly thereafter – publicly, the ecb has warned that such divergences create considerable risks and must be corrected. if fully implemented, macroeconomic surveillance will make a strong contribution to the smooth functioning of emu. it