increases market liquidity. robust reference rates can also reduce information asymmetries and the risk of misconduct by providing transparent, independent pricing. but, in the case of libor, the foundation had serious flaws. most notably, libor was ( and is ) based on submissions from individual banks — which, in turn, were based on hypothetical borrowing rates or expert judgments, and not actual transactions. moreover, deficiencies existed in regulatory oversight and governance of the rate - setting mechanism. these vulnerabilities enabled the manipulation of the rate for the financial benefit of individuals and institutions. amid profound breakdowns in controls and compliance, individual traders conspired with rate submitters at their own institutions or traders at other firms to manipulate the setting of the rate to improve their trading results. during the global financial crisis, panel banks also reportedly submitted lower borrowing rates than they could actually obtain in the marketplace. they did so to disguise their financial fragility at a time when uncertainty over bank liquidity and solvency was high. 3 the resulting scandal was particularly disturbing because of its scale and flagrancy, including collusion by employees across firms. it led to billions of dollars in fines, jail terms for some individuals, and severe reputational damage to the financial industry as a whole. the global 1 / 6 bis central bankers'speeches financial crisis exposed excessive risk - taking and a long series of lapses in judgment, and the libor scandal further undermined trust in the ethical standards of the banking industry. the scandal provides many cautionary lessons, including the ways in which poor technical design can be exploited, the limitations of self - regulation, the problems that arise when loyalty is to one ’ s trading co - conspirators rather than to one ’ s institution, and the need for robust controls. it also underscores the power of incentives to drive individuals and firms to do things that are imprudent and / or unethical. 4 and, the governance and control framework that the banks and the libor administrator had in place proved woefully insufficient to prevent misconduct that stemmed from poor incentives. in this context, one could say it was a situation ripe for exploitation. the openness and brazenness of misconduct as captured in the recorded transcripts also point to serious deficiencies in bank culture. my new york fed colleagues and i have commented frequently on the need for sound culture and incentives as a complement to effective regulation and supervision. while there has been some progress on

of national transactions. one of the causes was the lack of the appropriate technical infrastructure, discrepancies in information and business standards applied in individual countries and the willingness of the banking sector to gain financial benefits from higher fees for cross - border transactions. this problem was raised already at the very beginning of the implementation of the single currency in europe and the lack of visible and effective activities undertaken to change the situation encouraged the european union decision - makers to take regulatory action. the aim was to provide mechanisms for effective euro payments in the euroland and uniform principles for cashless payments. the policy stemmed directly from the lisbon strategy that assumed the creation of a strong european economy that would be able to compete on the international market. moreover, there were no specific activities in the banking sector to modernise payment systems. this induced the european commission to act. the main document that stimulated development in that area was regulation no. 2560 / 2001 of the european parliament and the european commission on cross - border payments in euro in the european union that established coherent legal regulations for all payment services to enable the application of various solutions and provided uniform technological and business standards for suppliers of payment services. the euroland ’ s banking community decided that the best way to fulfil requirements stipulated in the regulation was to implement self - regulating mechanisms and to establish the european payments council, an inter - bank organisation that coordinates and supervises works on sepa. sepa will be an area where citizens, entrepreneurs and other parties will be able to make and obtain payments in euro in the territory of europe – both cross - border payments and payments within the borders of the member states – according to the same simple rules, legal regulations and obligations regardless of the geographical location of the citizens and entrepreneurs. the main aim of the works on sepa, carried out by the european banking community, is to implement mechanisms for effective euro payments in europe and to treat this area as a local market with all its consequences, including transaction completion time and fees ( i. e. these parameters will be equal for national and cross - border payments ). the following assumptions have been made to achieve the objective : - a coherent and technically neutral ( i. e. independent of any specific type of devices ) legal framework should be provided for all payment services within the european union ( excluding cash handling and cheques ) ; this framework should allow for the implementation of various solutions, - uniform technological and business standards should be provided for suppliers of payment services, - self - regulating mechanisms