and a framework for bank resolution. the single supervisory mechanism will be operated by the european central bank. the establishment of the single resolution mechanism in the eu will facilitate the resolution of cross - border banks. importantly, the resolution framework gives the power to authorities to promptly implement a “ bail - in ” of bank debt holders when a bank goes into resolution. banks will have to have a minimum of 8 % of their liabilities eligible to bail - in. bail - in means that debt holders will bear see e. g. rajan, r. g. ( 2005 ), has financial development made the world riskier?, proceedings of the jackson hole conference organized by the kansas city fed, 2005. see e. g. davies & tracey ( 2014 ), “ too big to be efficient? the impact of implicit funding subsidies on scale economies in banking ”, journal of money, credit and banking ( forthcoming ). rajan, r. ( 2013 ), a step in the dark : unconventional monetary policy after the crisis. andrew crockett memorial lecture, bis, 23 june 2013. laeven and levine ( 2007 ), “ is there a diversification discount in financial conglomerates? ”, journal of financial economics 85 ( 2 ). see bolton, p. ( 2013 ), the good banker. bis central bankers ’ speeches losses without actual bankruptcy proceedings. hence the potential to bail - in is a major improvement in banks ’ de facto solvency. the key motivation for the banking union is to break the notorious bank - sovereign feedback loop, match the institutional structure ( supervisor and resolution authority ) with the geographic scope of the cross - border banks and pave way for further banking integration. true banking integration in europe could also enhance financial stability in the eu by reversing the fragmentation of financial conditions in the aftermath of the crisis, which is apparently hampering europe ’ s current economic recovery. the banking union project also includes a third element ; the prospect of creating a common deposit insurance system. however, the national systems currently vary a great deal, so that the first priority ought to be harmonization of the national systems of deposit insurance. the european commission has made proposals in this direction. there are also a number of other regulatory initiatives in addition to the banking union. some initiatives focus on increased transparency in the financial markets. for example, accounting standards and disclosure practices are reviewed, and banks are urged to improve risk management and corporate governance practices. other initiatives include supervision and regulation of derivatives

seppo honkapohja : financial liberalization in china opening remarks by mr seppo honkapohja, member of the board of the bank of finland, at the conference on financial liberalization in china, helsinki, 18 september 2014. * * * continuation of china ’ s economic growth and integration with the rest of global economy has increased its importance for other economies. increased trade ties and their effects on china and the rest of the world are certainly one major area for economic research. we economists often feel that increased trade in real goods and services is relatively straight - forward topic to understand. however, this trade is only part of increasing economic integration. very recently, china ’ s increasing financial integration has become a new and important challenge for both policy makers and research. given the size of the chinese economy, the consequences of its financial integration with the rest of the world are potentially very large. financial liberalization is a much more encompassing development than just technical lifting of controls. market - based financial systems contain new risks and uncertainties when compared to tightly controlled systems. the behavior of financial institutions in a liberalization process involves major challenges as the market participants learn to understand their new operational environment. a competitive financial system affects the effectiveness of banks and other institutions and they must be ready to carry out efficiency - enhancing reforms in order to cope with the new business environment. strengthening of the capital base and reforms of supervisory systems are important ingredients to the process of financial liberalization. let me mention one specific topic that is fundamental in the process of financial liberalization. freeing of cross - border capital flows poses a specific challenge to macroeconomic policy making. as is well known, it is not possible to control simultaneously amount of domestic finance, interest rates and the exchange rate of a country ’ s currency. the so - called impossible trinity must be respected when capital flows are free and finance is market - based. more generally, financial liberalization poses are a large number of other questions for research and policy making. i am happy to see that so many top researchers in the field have traveled to our conference to discuss the various topics. obviously the whole phenomenon of financial liberalization is very multi - faceted, ranging from integration of offshore and onshore currency markets to development of china ’ s own capital markets and to issues of international finance. all of these areas are important, and they are also potential sources of financial instability, if things do not go as well as is now planned. i am sure conference presentations and