was erected. on that date, the ecb assumed responsibility for supervising the 120 largest banks in the euro area – with the accession of lithuania, the number of supervised banks has risen to 123. these 123 banks account for more than 85 % of the aggregate balance sheet of the euro area ’ s banking sector, making the ecb one of the biggest banking supervisors in the world. the idea of european banking supervision was undoubtedly born out of the crisis. the crisis lent new urgency to something that had already been obvious before : in banking and finance, national borders are far less relevant than in other areas of life. such an integrated financial system is certainly desirable for all the well - known reasons, including efficiency gains and risk - sharing. however, that which distributes gains among all of us in good times, forces us all to share the pain in bad times. in an integrated financial system, problems in one country can quickly spread to others. bis central bankers ’ speeches this is what happened during the recent crisis and it made us realise that banking supervision had to adapt – with international banks that operate across borders, isolated supervision was not so “ splendid ” after all. to quote the imf, the european banking union is the “ logical conclusion of the idea that integrated banking systems require integrated prudential oversight ”. to be sure, there was a certain amount of cooperation in supervisory matters before the crisis. there was an exchange between home and host supervisors of internationally active banks. and there were supervisory colleges in which supervisors of global banks convened and shared their insights. however, this was not enough. an integrated financial system cannot be supervised through cooperation, it requires an integrated approach. taking banking supervision from the national level to the european level has three specific benefits. first, european banking supervision makes it possible for banks in the entire euro area to be supervised to the same, high standards. these standards will emerge from sharing insights and empirical findings internationally and taking the best from each national approach to banking supervision. germany, for instance, could benefit from a more quantitative - oriented approach, which has already been adopted by other countries. second, european banking supervision makes it possible to effectively identify and manage cross - border problems. this is essential, because, as i have mentioned, large banks are usually active in more than one country. the failure of the franco - belgian bank dexia in 2011 is a classic example of a case where banking supervision with a cross - border focus could have improved crisis management. another example is german

of them. such benchmarks would be a better fit for many derivatives transactions. market participants, together with central banks and other authorities, have been actively pursuing this “ twin track ” approach of strengthening existing benchmarks and developing alternatives. a risk - free rate would help accomplish two goals. first, it would reduce the dependence on any individual benchmark. second, it would allow counterparties to select benchmarks that might more closely match the exposures they want, enabling them to better meet the needs of some derivatives markets. for example, libor is meant to represent a bank ’ s cost of funding. it can vary according to a number of factors, such as an increase in underlying rates or a deterioration in the creditworthiness of banks — as we saw during the global financial crisis. imagine a sovereign issuer wanting to take a fixed - rate bond and swap it to a floating - rate liability. since such an issuer ’ s creditworthiness does not fluctuate with that of the banking system, using a benchmark with a shortterm rate that is not influenced by the creditworthiness of banks would be more appropriate. some of the alternatives that have been identified are new, while others are existing rates that are being, or have been, enhanced. in all cases, they are overnight rates. now, many jurisdictions are exploring whether they need to develop term risk - free benchmarks, say for one - or three - month maturities, for use in mortgages and cash markets and perhaps also for some derivatives. this might help the transition from libor - type benchmarks, where term rates are more widely used than overnight rates. for this to happen, such benchmarks would have to be consistent with the iosco standards. the pace of all this work accelerated last summer thanks to andrew bailey, chief executive of the united kingdom ’ s financial conduct authority ( fca ), which regulates libor. he announced that libor might be sustainable only until the end of 2021. after that date, the fca will not persuade or compel banks to submit libor rates. this means markets need to be ready to transition to alternative benchmarks. this announcement came as a surprise to those who had not been closely following benchmark developments. now, roughly a year later, there appears to be wider market acceptance of what needs to be done, and progress is continuing despite the significant complexities. 2 progress in the united states i ’ ll focus on recent developments in the united