contexts but on global markets. what would not be possible in paris or frankfurt could still be allowed in london or new york for instance. they may also be counterproductive since they could deter activities away from our market onto others and they could significantly alter the liquidity of securities aimed by the restriction since foreign investors may shy away from them and turn to other opportunities. let me be clear, though, this does not mean that nothing should be done. on the contrary, i believe that instead of banning and creating incentives to relocate certain activities elsewhere or circumvent those rules, it is preferable to attract and better supervise. this can be done : - first by integrating otc markets into regulated and supervised market infrastructures such as trading platforms, trade repositories and ccps. in the case of sovereign cds this will mean that all cds written on euro area sovereigns should be compensated in a ccp located in the euro area. incidentally, that requires a fair amount of standardization of these single name cds. - second, by enhancing transparency, both ex ante and ex post to improve our understanding of the price discovery mechanism and our knowledge of actual net positions of financial institutions. - finally, by improving risk management by agents active in these markets and ensuring that these practices are compatible with their risk profile. in the case of sovereign cds, the issue is not necessarily with buyers who ultimately carry limited risks but with sellers. in fact we probably need a specific supervision of credit protection sellers. regarding credit rating agencies, the agreement on strengthening the regulatory oversight is becoming a reality with the implementation of the agreed european framework, which will give a pivotal role to the european securities market authority. at the same time there is a need to reduce the dependency on credit rating agencies for regulatory purposes, both in prudential regulation and as eligibility criteria for central bank refinancing. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * let me now conclude briefly. we are still going through very challenging times. the european banking system seemed to have recovered partly thanks to central banks and governments policies supporting the banking sector. this return to profitability should be used to comfort capital positions in those firms, in views of the various risks i have rapidly discussed. recent renewed strains on financial markets especially sovereign markets and the subsequent impact on the banking sector show us that the crisis is not fully behind us and

, banks are already suffering from increasing government debt issuance which has a crowding out effect and contribute to steepen the yield curve ; it is a real issue as banks debts maturing in the next three years are significant while government support and central banks facilities are expected to be gradually removed. in that tense context, the sovereign debt crisis trigger increasing funding tensions for european banks owing to the contagion of sovereign to banks spreads. it reflects the traditional belief that domestic financial institutions cannot be less risky than the sovereign which are supposed to back them in case of need. over the past seven months, this fact has been confirmed by the increasingly strong correlation of bank cds with those of the country where they are located. it is an area of concerns for banks especially in the case of a rapid and abrupt evolution. a surge in the cost of funding will be therefore damaging for banks profitability and their ability to grant credits. short - term funding may also cause some concerns for banks as multiple sovereign downgrades can lower, either through a decrease in market prices or through an increase in haircuts, the value of government securities used to collateralize refinancing. on the asset side, banks are exposed to an abrupt drop in sovereign debt prices through mark - to - market losses on sometimes large trading portfolios of government bonds detained as a liquidity buffer. in addition, banks active on cds as net protection sellers are also exposed to mark - to - market losses and real losses in case of a debt restructuration which constitutes a credit event triggering the cds. these losses could erode the capital base of the banks at a time when the risk weighting of assets, based on credit rating levels, increases. the two factors push down capital ratios and reduce the potential for lending to the economy. it brings us to our third contagion channel. 3 ) lastly, the economic channel is likely to play a significant role via the fiscal adjustments necessary to repair public finances and restore the credibility of the countries on financial markets. the increase in public investment and spending had mainly contributed to the economic growth of the last semesters ; their drop could weigh on the recovery even if the calibration and the path of fiscal adjustment are supposed to be fine - tuned to allow a sustainable fiscal consolidation without challenging a long - lasting economic recovery. strong and unambiguous responses from european governments and the eurosystem in such a context, the role of central banks and public authorities was crucial to restore confidence