to ensure a harmonised set of prudential rules for all credit institutions across every country. in the eu, basel iii is transposed through two pieces of legislation, namely the capital requirements directive and the capital requirements regulation. negotiations on these items of legislation, which will enter into force in january 2014, were very intense. we welcome the availability of uniform rules and standards but will have to make sure that they are also implemented in a common way. thus we need to overcome all the waivers, exceptions as well as grandfathering claims and options. andrea enria, the chair of the eba “ four presidents ” of the european council, european commission, eurogroup and the ecb. european council ( 2012 ), “ towards a genuine economic and monetary union ”, june http : / / www. consilium. europa. eu / uedocs / cms _ data / docs / pressdata / en / ec / 131201. pdf. bis central bankers ’ speeches with whom i shared a panel at a conference in frankfurt last week, mentioned that more than 100 of such “ flexibilities ” still exist even in the new framework. second, what will a european banking union do and how will it work? the crisis has shown that an economic and monetary union cannot function without a banking union. we are now building one, from the ground up, to tackle the “ doom loop ”, curb financial fragmentation and enable banks to rebuild trust and provide a sustainable supply of credit to the real economy in every country and for every sector. 4 about the ssm : first part – the micro - prudential the regulation for establishing a single supervisory mechanism ( or ssm ) has recently been approved by the european parliament. it is in the process of being finally agreed by the european council. the ecb will be the central authority of the ssm and it will be supported by national supervisory authorities. its mandate will be to supervise the whole banking sector of the euro area, plus those of any non - euro area member state wishing to join. the ecb will be entrusted with the whole toolbox for banking supervision including : authorising and withdrawing bank licences, collecting on and off - site information, undertaking on - site inspections in cooperation with the national supervisors, and validating banks internal models and risk controls. whenever necessary, the ecb will also be able to solicit additional capital, liquidity and other prudential requirements. this is a huge

for banks and their valuation. third, the impact of higher funding costs and the constraints on the ability of banks to re - set rates on longer maturity assets could mean that banks cannot earn the previously expected rate of return on them, which, like the first reason, is amplified by widespread loan forbearance, in both the household and corporate books. and, fourth, there could be a market value adjustment to reflect more structural uncertainty about the future business model of banks, for instance due to uncertainty about the final shape and impact of regulations, for instance the likely cost of implementing the ring - fence. any of these four could contribute to the market value of banks ’ capital being less than the book value of tangible equity capital. this is not currently true for all banks, but among the uk banks, more often than not, they are valued by the market at quite a sizeable discount to book value. if the market value diverges from the tangible book value, we know that investors are likely to be at least unsure that a firm ’ s net assets are valued correctly in the published accounts. consistent with this, we can see that in their published accounts, banks are placing a fair value on some of their assets which is below the book value. bis central bankers ’ speeches this evidence, while informative, does not, for me at least, get to a conclusion on the need to add more nominal capital, or more particularly how much capital to add. to do that, we need to know more about the contribution of these various possible causes of market values of banks ’ capital, and that must be the key next step in the work. on this, i would ask for the insights of banks themselves and analysts, because as i always say, i know one thing for sure, we don ’ t have a monopoly of wisdom, and this is a tough question. but, it is a key question, because the danger of a very slow resolution of the capital gap is that new lending to the economy is seriously restrained. this is the japanese threat, based on the recent history of japan, and the basis of the argument that a more aggressive approach to re - capitalising banks will create more support for new lending. moreover, it does illustrate why we see a close interaction of the fpc ’ s two objectives, of resilience and growth. i need to see more evidence and analysis of why market values of banks ’ capital are low before i can determine what and how much needs to