capital buffer for trading activities and leaving the separation of activities conditional on supervisory approval of a recovery and resolution plan, rather than a mandatory separation of banking activities. both basic alternatives and their motivation are presented in the report. 2. second, effective and realistic recovery and resolution plans must be drawn up and maintained by the banks, as proposed in the commission ’ s bank recovery and resolution directive. the resolution authority should request a wider separation than the considered mandatory separation above if this is deemed necessary to ensure resolvability and operational continuity of critical functions. 3. the use of designated bail - in instruments is strongly supported by the group. the position of bail - in instruments within the hierarchy of debt commitments in a bank ’ s balance sheet must be clear so that investors know the eventual treatment in case of resolution. banks should build up a sufficiently large layer of “ bail - inable ” debt. such debt ( or an equivalent amount of equity ) would increase the overall loss - absorptive capacity, decrease risk - taking incentives, and improve transparency and the pricing of risk. 4. the group proposes to apply more robust risk weights in the determination of minimum capital standards and more consistent treatment of risk in internal models. once the basel committee has concluded its review of the trading book, the commission should assess whether the results would be sufficient to cover the risks of both deposit banks and trading entities in europe. also, the treatment of real estate lending within the capital requirements framework should be reconsidered, as well as maximum loan - to - value ( and / or loan - to2 bis central bankers ’ speeches income ) ratios included in the instruments available for micro - and macro - prudential supervision. 5. finally, the group considers that it is necessary to augment existing corporate governance reforms by specific measures to 1 ) strengthen boards and management ; 2 ) promote the risk management function ; 3 ) rein in compensation for bank management and staff ; 4 ) improve risk disclosure, and 5 ) strengthen sanctioning powers. bis central bankers ’ speeches

that purpose, they will still want low cost trading and settlement mechanisms that minimise their exposure to counterparty risk and the impact on their balance sheets. so there are perhaps some tensions between the various forces at work here. to take another example, economies of scale in trading, clearing and settlement suggest that to minimise costs firms should encourage consolidation and integration of these activities within a market. yet the major firms have, understandably, been very reluctant to allow the dominance of a single supplier. for example, ebs ( electronic broking system ) was set up by the major banks to offer an alternative system for foreign exchange trading. ladies and gentlemen, let me finish by saying that it is difficult to draw firm conclusions about the future structure of the financial services industry. if it was, strategic decision making would be easier than it seems to be. but financial service businesses based in the uk start from a strong position, and are well placed to thrive in an environment that will evolve at an increasing pace, become even more competitive, and place an even greater premium on innovation. the bank of england will monitor and analyse the developments very carefully – both because we want uk financial services to thrive, and because in the pursuit of our financial stability responsibilities we need to be able to spot potential problems as quickly as possible.