’ remittances, which are an important source of foreign exchange receipts, for much of the region have plunged. with many regional governments over - burdened with debt, there has been renewed recourse to the imf and the other multilateral institutions for financial assistance. here at home, we have not been spared. after gdp growth averaging 7 percent since 2001, the economy saw a reversal, starting in the fourth quarter of 2008. this has continued into 2009, when we are likely to register negative growth, on an annual basis, for the first time since 1993. reading about the recession abroad and seeing it translated into a sharp fall in energy prices, a negative psychology has overtaken consumers who have become cautious and have started to spend less. at the same time, businessmen have postponed investment projects. i continue to believe that we are fortunate because we still have the fiscal space to maintain demand. there is still sufficient activity going on and enough hope for an early resurgence, to forestall an even more precipitous reduction in employment. five years ago, we would have considered an unemployment rate of 5. 1 per cent and an inflation rate at a similar level ( 5 per cent ) as the reward for good economic management. but times have changed. the harsh reality is that our economy was developing at a pace and in a manner that was clearly unsustainable. bottlenecks had already begun to emerge in several places – in transportation, in the public utilities ( electricity and water ), in skilled labour and in management. the international recession advanced the inevitable and in my view has given us the opportunity to stop, re - think, re - prioritise and, to learn from our mis - steps. take the financial sector ; we were able to ride out the international financial crisis virtually unscathed, and to contain contagion from our own domestic financial debacle. to me, this testifies to the underlying strength of our financial system and in particular, its robust capitalization ( in the case of the banks ), and the system ’ s generally conservative orientation. that said, our local financial crisis carries clear lessons, some of which are : • first, that to effectively manage a modern financial system, you need state - of - theart legislation, with penalties and a regime to ensure compliance. • second, that good governance structures are an indispensable part of the efficient management of financial institutions. boards of directors must understand their fiduciary

benoit cœure : why the euro needs a banking union speech by mr benoit cœure, member of the executive board of the european central bank, at the conference “ bank funding – markets, instruments and implications for corporate lending and the real economy ”, frankfurt am main, 8 october 2012. * * * i would like to thank carmelo salleo for his contribution to the speech. i remain solely responsible for the opinions expressed herein. introduction ladies and gentlemen, it is a great pleasure to be here with you this evening as part of this conference. i firmly believe that good research underpins policy choices and, as you know, the european central bank ( ecb ) is very committed to carefully conducted, high - quality analysis as the bedrock of its decision - making. bank funding has been the focus of policy - makers ’ concerns for the past few years, ever since the collapse of lehman brothers, which brutally reminded us all of the systemic dimension of liquidity and funding risk. such a cataclysmic event elicited a host of responses, ranging from central bank interventions to prevent a meltdown of the financial system to the design of new regulations to limit risk - taking by financial institutions. the shock was global – and the response has been global. however, much work still needs to be done, so i welcome opportunities such as this conference to gain a better understanding of the dynamics and determinants of bank funding and of their implications for the financial system and the real economy. our interest in bank funding, as central bankers, stems also from the fact that it touches upon the very essence of our respective mandates. money, remember, is the liability of the banking system. central bank money represents but a fraction of broad money. to ensure that money is sound, and, in the euro area, that it is “ single ”, we need the banking system to be equally sound, and importantly, single. it is against this background that i will devote my remarks tonight to the latest development in european policy, specifically the decision to proceed with a banking union to complement monetary union in the euro area. i will discuss the desirable components of a banking union, towards which a single supervisory mechanism represents the first step. the establishment of a banking union is a key factor in the completion of monetary union, and probably a turning point in the current crisis, with profound repercussions for the financial sector and the real economy alike. over the past few years, the mounting pressures