). 1 this state of affairs increases the regulatory burden, provides incentives for regulatory arbitrage, hinders competition, exacerbates moral hazard, uses taxpayer money to save inefficient firms, endangers the eu integration process, and is inconsistent with financial stability. world and eu financial stability frameworks are evolving with the aim to enhance crisis prevention, management and resolution for cross - border financial institutions. in 2008, given the costs of the crisis and the nordic experience, the eu proposed an mou on cooperation among supervisors, central banks and ministers of finance on cross - border financial stability. this was a key step in establishing a series not only of principles, but also procedures to exchange information and cooperation among countries in normal times in order to prevent, as well as to manage and resolve, cross - border crises. the 2008 mou includes prescriptions for coordinating public information, conducting stress - testing exercises and establishing contingency plans. it remained, however, a voluntary framework which does not fully solve the tension between home country lead responsibility for integrated supervision and the host country responsibility for financial stability. in 2009, the larosiere report and the european council agreed on the need to build a comprehensive cross - border framework for the prevention, management and resolution of financial crises in the eu. the financial stability board ( fsb ) published principles for cross - border cooperation on crisis management stressing the role of supervisory colleges. these principles enhance incentives for financial institutions to behave prudently ; promote private sector solutions and limit public intervention only when necessary to preserve financial stability and ; keep a level playing field. supervisory cooperation took a big step forward with amendments to the crd as a 2009 ec directive made compulsory the colleges of supervisors for banks with significant subsidiaries and branches in the eu. chaired by the consolidating supervisor, the colleges have the objective of exchanging information ; determining risk assessment programs of the banking groups ; leveling the playing field in terms of application of the directive in the concerned member states. finally, last may, the council of the eu decided the establishment of cross border stability groups for all large eu cross - border groups by mid 2011 accompanied by the signature of cross - border cooperation agreements. recognizing the insufficiency of the microprudential approach to deal with systemic risks, the european parliament approved a new crisis prevention framework which also considers the systemic risks posed by international banks. it is now generally accepted that microprudential regulation and supervision of individual institutions and

questionable elements. in this regard, it is worth recalling that the leverage ratio does not account for the real risk of assets in addition to ignoring bank - specific business models – even if universal banks have been proven to be more resilient than investment banks ( see figure 4 ) indeed, diversified banks were not the main channel underlying the spread of the subprime crisis that originated in the united states. rather it was the investment financial institutions, including the shadow banking system, that seemed to be the main vehicle of contagion. recent imf figures displayed at the last imfc meeting, usefully underpinned by 2 documents “ understanding financial interconnectedness ”, ( see figure 5 ) provide evidence that the level of financial interconnectedness of the shadow banking system, in contrast with banking system linkages, might explain the rapid process of crisis transmission. the crisis occurred against a background of eu financial stability frameworks built on a national basis. in the eu, each country ’ s supervisory authorities derive their legitimacy from national parliaments, are subject to national accountability mechanisms, and are financed nationally. a set of mous make each country ’ s authority responsible for the consolidated supervision of financial institutions domiciled in that country, the home supervisor, while host supervisors are responsible for subsidiaries of institutions from other countries operating in their territories. each national central bank is responsible for providing ela to financial institutions domiciled in its territory with the obligation of informing the ecb. the eu had concluded two mous to deal with crossborder issues in crisis management : the 2003 mou on high - level principles of cooperation between banking supervisors and central banks, and the 2005 mou on cooperation between banking supervisors, central banks and finance ministries. mous have been signed to deal with banks of regional systemic importance as well. in turn, colleges of supervisors are responsible for monitoring insurance groups and some banks. committees in charge of developing guidelines for the functioning of supervisory colleges and the assessment of financial sector vulnerabilities report to the financial stability table of ecofin. eu regulations are applicable to all eu countries ( e. g., crd, mifid, and solvency ii ), but countries can choose the form and methods by which to implement those regulations nationally. the eu commission has enforcement powers in matters related to the completion of the common market, and thus on mergers and acquisitions of financial institutions and injections of state capital. finally, international organizations and international standard setters such as the