seriously suffered from the financial crisis and from the euro area sovereign debt crisis that came to a head thereafter. experiences from the financial crisis revealed that it was unsustainable to have integrated european banking and financial markets, on one hand, but nationally fragmented banking supervision and crisis resolution, on the other. if large financial institutions are engaged in significant cross - border activities, their supervision and crisis resolution must also be based on a broader framework. as a result of the establishment of the banking union, today we have the single supervisory mechanism ( ssm ) that has the mandate to ensure rigorous and consistent supervision of crossborder banks. at the same time, it draws on the local expertise of national financial supervisors. secondly, the common crisis resolution framework aims to ensure coordinated and orderly restructuring of failing multinational banks. there is some evidence that implicit government guarantees have recently declined. this means that markets have begun to take governments ’ goals seriously. however, the third element of the banking union, the common deposit guarantee scheme, is still incomplete. i will return to that at the end of the presentation. 3. outlook for the future risks are changing have the regulatory reforms been effective? there are good reasons to believe that global financial system has become more stable and safer post - crisis. even so, the risks threatening stability are like constantly mutating viruses. they often become more virulent when reacting to medication developed for earlier diseases. expressed in ice hockey terminology, the challenge of financial market supervision is ‘ to skate in the direction where the puck will go next, not where it is now ’. central banks have in recent years kept their policy rates at exceptionally low levels. expansionary monetary policy has been indispensable in a world slowly recovering from the crisis. as a side effect, low interest rates can increase incentives for risk - taking and feed the elevation 4 / 7 bis central bankers'speeches of asset prices. lending in some countries has begun to grow at a potentially excessive pace. this is when macroprudential tools need to be deployed. the financial industry is also undergoing change. the boundaries between banking and other corporate activity are blurring. in addition, banks are being challenged by new market participants harnessing the latest technology. digitalisation will bring benefits. benefits also include new risks, some of which are still hard to identify. on the other hand, in recent years, international financial activity has also become simpler in a sound way. a few examples : 1 banks are engaged in short - term

securities trading to a lesser extent than in earlier years. 2 many large international financial conglomerates have streamlined and simplified their structures. 3 the use of complex, artificial financial instruments producing no real added value has declined. 4 the markets for financial derivatives are more transparent. many of these changes have gone a long way in the direction suggested in the high - level expert group ’ s report on banks ’ structural reform, but not all the way. too much of a good thing? the following question has also been raised : have post - financial crisis regulatory reforms gone too far in the sense that they have become an impediment to economic growth? a recent study argues that the recovery of bank stock valuations following the global financial crisis and the european sovereign debt crisis has been slow compared with previous crises ( in spite of the recent development ). the study suggests that the reason for this could be regulation. ( i ) the regulatory reforms have been considerable, but time has also been granted for adapting to them. meanwhile, the low interest rate environment may have presented challenges for profitability of some banks, depending on the interest rate linkages of their assets and the composition of their own funding. however, it is essential that banks ’ profitability cannot any longer be based on their own funding being supported by public safety nets, which enables high leverage and, through that channel, a seeming improvement in profitability. owners and investors need to be prepared for bearing the risks : both profits and losses. the new bank recovery and resolution legislation offers tools for a genuine transfer of risks to bank owners and investors in bank debt markets. this may lead to bank owners and investors requiring higher risk premia in the future. there is, however, no return to times of ineffective regulation and the practice of taxpayers ultimately bearing the risks involved. ‘ shadow banking ’ an important question in the assessment of post - crisis regulation is whether revised bank regulation drives banking and its risks increasingly to ‘ shadow banks ’. these are businesses that offer financial services and are engaged in activities resembling banking, but are subject to more relaxed regulation. shadow banks had a significant role to play in the build - up of the financial crisis, as part of banks ’ actual risks did not appear on their own balance sheets, being hidden as off - balance - sheet items. 5 / 7 bis central bankers'speeches various views on the management of risks in the shadow banking sector have been put forward since the crisis. significant regulation of shadow banks has not been introduced so far.