. that requires striking a suitable balance between measures to minimise the probability of the bankruptcy of systemic institutions – by imposing supplementary capital buffers – and, in the case of more complex institutions, the design of contingency action plans which ensure orderly resolution if a state of non - viability is reached. this is, in essence, the content of the work undertaken recently by the financial stability board. in any event, the essential ingredient of orderly bank resolution schemes is the specification of a bail - in arrangement establishing a clear order of priority for the claims of shareholders and the various types of creditors that can be activated before insolvency proceedings are commenced and before any state aid is made available. the credibility of this framework will favour the appropriate perception of the risk effectively entailed by each liability instrument and will minimise the bill to be borne by taxpayers to prevent the disorderly winding - up of banks. in the european arena, we have progressed greatly in the definition of a regulatory framework for the resolution of non - viable banks. there is already political agreement on a proposed recovery and resolution directive which will establish a clear burden - sharing system for insolvent banks and thus minimise the possible cost of rescue for taxpayers. bis central bankers ’ speeches this directive is also a first step in the creation of a single resolution mechanism to supplement the nascent single supervisory mechanism which will enable a real banking union to be set up in europe. this project is essential to overcome the problems of fragmentation which still beset european markets and which cause the perception of risk associated with banks ’ liability instruments to differ depending on the jurisdiction in which they operate. however, as you know, to ensure that non - viable banks are resolved in the same way in the various member states of the euro area, it does not suffice to have a set of common regulations ; rather, it is necessary to have a single resolution authority to ensure that the regulations are applied uniformly in all countries. similarly, the financial support needed for orderly bank resolution must be available under similar conditions whenever required. clearly the lack of a full european resolution mechanism ( including uniform rules, a single authority and a common fund ) would limit the effectiveness of the single supervisory mechanism. in that case, the single supervisory mechanism would have to resort to a complex system of interaction with the national authorities ( which would have to continue using their resources to cover the fiscal effects of the problems of non - viability detected by the supervisor ) to ensure financial stability. in this

respect the draft legislative proposal submitted by the european commission ( ec ) last july for the establishment of a single resolution mechanism is very timely. the ec proposes the creation of a single resolution agency or authority, which would manage a common fund fed by contributions from the industry and ultimately report to the european commission. it is true that some countries have expressed doubts as to the legal basis of the proposal. moreover, this initiative may possibly assign excessive protagonism to the ec in some cases. nevertheless, it is important that a political agreement be reached rapidly, allowing the creation of a scheme which will contribute not only to remedying the current fragmentation of the bank instrument market in europe, but also, as i mentioned earlier, to the effectiveness of the single supervisory mechanism. structural measures finally, the third pillar of global regulatory reform i wish to briefly inform you of is the measures aimed at restricting the business model of financial institutions. here i refer to the volcker rule in the united states, to the conclusions of the report drafted by an independent commission chaired by john vickers in the united kingdom and to the proposals in the european union by a group of experts chaired by the governor of the bank of finland, erkki liikaanen. the rationale of these reforms leaves little room, conceptually speaking, for discussion. in the years leading up to the crisis, banks devoted a substantial amount of funds to proprietary trading and own - account investment activities which notably increased the size and complexity of their balance sheets. this expansion of business may be partly related to the ease with which banks can access funds in a setting in which, as i described earlier, bank liabilities ( and particularly the most traditional type, such as deposits ) enjoy a kind of implicit public guarantee. that is to say, some banks have been able to use the taxpayers ’ guarantee to assume excessive risks which have made it increasingly likely that the guarantee will be called upon. structural measures are intended, in this respect, to prevent risky activities such as proprietary trading from being pursued by banks which simultaneously take deposits from the public. unfortunately, these initiatives have remained outside the bounds of international coordination and, more specifically, lie beyond the remit of the financial stability board ( fsb ), which has given rise to a lack of uniformity across jurisdictions. for example, although the us proposal permits deposit - taking institutions to engage in a wider range of activities than the european proposal does ( including market - making bis central bankers ’ speeches activities ), it does require