s largest banks. holdings of liquid assets for the major uk banks have trebled and leverage has almost halved. third, the lengthy transition is designed to ensure that the new standard does not have a procyclical effect, driving banks to deleverage further, to shrink their balance sheets to help meet the new, tougher standards. i should make clear here that i do not buy the argument that if we require banks to hold more capital and liquidity then, inevitably, they will lend less. indeed, the opposite can be true. as we saw in japan and see elsewhere, weak banks desperate to do what they can to improve their capital positions – but unwilling to bite the bullet and issue fresh equity – can become zombies of little use to the real economy. to lend, to play their necessary role in enabling economic growth banks need to be healthy. so while it is right that we give banks time to transition to the end point of the new standards, that does not mean that we put off strengthening of capital and liquidity until the end of the process. we have needed in the uk to take action intended to restore banks ’ capital positions to health. so that now they can move up to higher basel iii standards. on interconnectedness, we have agreed standards for the $ 700 trillion of derivatives, including cds, previously sold “ over the counter ”. this includes the requirements for trading to clear through “ central counterparties ”. so the risks in these contracts are transparent. so the risks are managed by ensuring that the parties to the contract back up their obligations to each other with collateral as the value of the contract changes. the us has implemented the new standards in law and is now implementing them in practice. in the eu, standards are expected to come into force in the next year or so. between them, the us and eu account for 80 % of this market. to be clear : progress in this area has not been without setbacks. although there has been now agreement on an international standard, implementation in the us and eu has differed in a number of key respects. at times these differences have threatened to balkanise what is now a global market. bis central bankers ’ speeches i am pleased to say that both the us and the eu appear now to be inching toward recognition of each other ’ s implementation of the standards. the threat of fragmentation of the market seems to be receding, even if success is not yet assured. but it is an example of the differences

fully understand the effects – and side - effects – of these new mechanisms at an early stage. the same goes for innovations affecting financial market infrastructures – especially those that are systemically important. such assessments of new technologies are based on a set of internationally accepted guidelines called ‘ principles for financial market infrastructures ’. 2 these principles define the criteria that infrastructures must meet, thereby setting standards for innovation in this field. central banks and regulators have a duty to pass legislation guaranteeing the safety of financial market infrastructures – by protecting their stability, resilience and availability, irrespective of technological change ; but they must also take on board the efficiency goals of infrastructure providers and their participants. regulatory adjustments may be needed to catalyse the positive effects of certain innovations. 3 cf. committee on payment and settlement systems ( now committee on payments and market infrastructures, cpmi ) and technical committee of the international organization of securities commissions ( iosco ), ‘ principles for financial market infrastructures ’, april 2012. the federal intermediated securities act ( fisa ) introduced in switzerland in 2008 is a good example of a regulatory change – in this case designed to manage the transition to dematerialised securities at central depositories. dematerialisation and the associated regulatory changes also significantly improved the efficiency and safety of repo settlement and hence of monetary policy implementation. page 3 / 6 from centralisation to decentralisation – how far should it go? until very recently, safety and efficiency were considered to be functions of centralisation. this trend is reflected in the evolution of central securities depositories 4 and in the emergence of cashless payment transactions. in switzerland, centralised clearing houses in the 1940s and centralised data processing in the 1970s were waypoints on a journey of convergence. this development culminated in the creation of the centralised ‘ swiss interbank clearing ’ ( sic ) payment system in 1987. 5 another – more recent – example is the settlement of otc derivatives via central counterparties. 6 this centralisation process and related economies of scale both reduced costs and improved safety. however, with the arrival of the latest technologies, these third - party clearing and settlement services are increasingly seen as superfluous cost factors ; the keywords here are ‘ distributed ledger ’ and ‘ blockchain ’. 7 the underlying technology promises first and foremost to reduce costs. for instance, such systems would render the reconciliation of transaction and balance data between banks and a third - party system obsolete. the paradigm