accounts of central banks and private enterprises. i find it difficult to believe, for example, that the crises that arose in thailand and korea would have been nearly so virulent had their central banks published data prior to the crises on net reserves instead of the not very informative gross reserve positions only. some inappropriate capital inflows would almost surely have been withheld and policymakers would have been forced to make difficult choices more promptly if earlier evidences of difficulty had emerged. increased transparency can expose the prevalence of pending problems, but it cannot be expected to discourage all aberrant behavior. it has not prevented reliance on real estate for collateral from becoming problematic from time to time. east asia has been no exception. when real estate values fall sharply, as they do from time to time, such collateral tends to become highly illiquid. removal of legal impediments to more widespread forms of collateral and to prompt access to collateral would be helpful in dealing with these problems. it is increasingly evident that nonperforming loans should be dealt with expeditiously and not allowed to fester. the expected values of the losses on these loans are, of course, a subtraction from capital. but since these estimates are uncertain, they embody an additional risk premium that further reduces the market ’ s best estimate of the size of effective equity capital. funding becomes more difficult. partly reflecting uncertainties with respect to their nonperforming loans, japanese banks in london, for example, are currently required to pay about a 15 basis point add - on over what markets require for major western banks for short - term deposits denominated in yen. it is, hence, far better to remove these dubious assets and their associated risk premium from bank balance sheets, and dispose of them separately, preferably promptly. a predicate to addressing nonperforming loans expeditiously is better and more forceful supervision, which requires more knowledgeable bank examiners than, unfortunately, many economies enjoy. in all countries, we need independent bank examiners who understand banking and business risk, who could in effect, make sound loans themselves because they understand the process. similarly, we need loan officers at banks that understand their customers ’ business - - loan officers that could, in effect, step into the shoes of their customers. lack of a cadre of loan officers who have experience in judging lending risk can produce debilitating losses even when lending is not directed by government inducement or the need to

. in the united states, smoothing is mainly undertaken by private investors and companies who, by diversifying their holdings across states, can mitigate recessionary pressures in their own state through financial income from other jurisdictions not hit by negative shocks. 7 the crisis has once again reminded us of a fundamental lesson : as the euro area is set to widen, it must strengthen its institutional structure. the most urgent task we face is to complete both banking union and capital markets union, thereby increasing cross - border ownership of assets and bringing about a more balanced financial structure. the diversity of the euro area would then become a source of strength rather than weakness, as financial holdings would be diversified across a wider set of countries and assets. moreover, the market would then cushion economic shocks, reducing the need for public money. but more integrated financial markets, on their own, are not enough. a monetary union as diverse as the euro area also needs a common fiscal instrument to maintain convergence when firms and households collectively retreat across the union. as the euro area widens and the preferences of its members become more varied, it may become more challenging to find agreement on such projects. this is due less to insurmountable differences – indeed, cultural diversity across the eu is estimated to be of a similar magnitude to that in the united states8 despite of the unifying role of language unity in the latter country – than to divisions in decision - making. this reinforces the case for building strong institutions with a clear mandate and full democratic backing, particularly as the euro area widens. an agenda for widening the euro area should thus be accompanied by an agenda for deepening, and the two should be treated together in policy discussions. ensuring that euro area accession is beneficial to all a deeper emu, however, does not absolve countries from their responsibilities. experience shows that adopting the single currency can give rise to significant opportunities. but opportunities are there to be used or to be wasted. history provides examples of both. ensuring 2 / 4 bis central bankers'speeches that new euro area countries meet the economic and legal conditions for successful membership therefore remains indispensable and, critically, is in everyone ’ s interest. and while it is important, of course, that countries adopt the eu ’ s body of law before joining the eu and fulfil the numerical convergence criteria before adopting the euro, these steps are not in themselves sufficient to benefit from membership of the eu and the euro area on a lasting basis. relentless efforts must be