##s with each bank planning to use the irb approach have begun so that problems can be identified and resolved, while the preparations of banks intending to use the standardized approach will be reviewed at a later stage - sometime before the end of 2006. an important issue for the bank of greece is to evaluate not only the technical aspects of the banks ’ internal systems and the methodologies used to validate their output, but also to ascertain whether the output of these systems is utilized in managerial decision - making in such areas as loan approval and pricing, provisioning, and capital allocation. at this stage it is difficult to determine the overall impact of basel ii on the total capital requirements of the greek banking sector. the impact will depend not only on the alternative approaches adopted by the banks, but also on the composition and quality of their assets, both of which are affected by economic conditions. however, one limited preliminary indication was provided by the result of the 2003 quantitative impact study. for the 6 greek banks that participated using only the standardized approach at that time, there was a 7. 5 % net increase in the combined capital requirement for credit and operating risk compared to the corresponding requirement under the existing framework ( a 2. 5 % decrease of the requirement for credit risk and a 10 % increase for operating risk ). pillar ii on supervisory review requires the conduct of risk - based supervision and the existence of detailed systems and policies at each bank to determine, maintain and allocate economic capital in accordance with its risk profile. this increases the pressure on supervisory resources as well as banks. in greece, supervision has traditionally focused more on examining the accuracy of supervisory returns submitted by the banks, on a point - in - time evaluation of the quality of loan portfolios, and on the technical calculation of capital requirements to cover credit and market risk. in recent years, however, increasing emphasis has been placed on the assessment of internal control and risk - management systems, taking into account the risk profile of each bank. in this respect, the bank of greece found it necessary to impose a minimum capital adequacy ratio above the statutory minimum of 8 % on some banks. to enhance its ability to conduct risk - based supervision, the bank has taken steps to improve the skills of existing supervisory staff through specialized training and has also recruited personnel with skills in quantitative risk analysis. the banks have also strengthened their risk management units, but, in order to successfully implement pillar ii further efforts will be required. pillar iii enhances market discipline

relaxing existing restrictions and preconditions – that allow, inter alia, the single resolution fund to contribute only after 8 % of total liabilities and own funds have been written down to absorb losses of failing banks – could also facilitate the use of funds already in place. 2. second, financial stability concerns must have an equal weight in the management of crises. the potential use of deposits to absorb losses or recapitalize failing banks merely provides incentives for national authorities to avoid intervention or add to the plethora of national exceptions that seek to bypass the framework. policy makers must ask themselves whether the reluctance of national authorities to implement the european framework is an attempt to avoid short - term political costs or something more fundamental. i think it is the latter. european citizens seek a safe asset – and that is a bank deposit. this is not just crucial for retail depositors but also for smes which contribute considerably to the backbone of the real economy. 3. third, the framework would benefit from a harmonization of national insolvency frameworks to reduce uncertainty and facilitate a level playing field for creditors when conducting the public interest assessment especially for cross - border cases. the recent case of sberbank where different legal frameworks ( austrian, croatian and slovenian ) came into the frame when ensuring the orderly closure of banks because of nonbank issues ( russian sanctions ) is a case in point. moreover, the common eu administrative insolvency procedure for medium - sized banks could ensure open - bank transfers in liquidation just as the sale - of - business tool works in resolution or us / fdic - style purchase and assumption transactions supported by deposit insurance guarantee schemes can preserve banking assets to the benefit of depositors. 1. before a bank is declared as failing ; 2. in the case of resolution ; 3. to ensure the orderly exit of the bank from the market. once again national legislation in this area is fragmented and the deposit guarantee scheme directive should also aim to put in place a broader and enhanced role for a european deposit insurance scheme, making it fit for purpose for banking union. impediments for cross - border integration in the deposit guarantee schemes directive should also be addressed. my focus on banks and the supervisory / regulatory framework that surrounds it does not imply that attention does not need to be paid to capital markets. however, i consider it paramount that we move banking union forward. from when it was first agreed, eight years on, banking union remains incomplete. this circumstance has not