a key flaw. [ 4 ] i will return to this issue later on in this talk. the second major crisis – the 2007 – 2009 global financial crisis – is still fresh in our minds. the build - up of excessive leverage and subsequent deleveraging in the banking sector [ 5 ] and within financial markets more generally [ 6 ], is widely viewed as one of the main causes of the global financial crisis. notably, an important conclusion of this literature is that leverage and liquidity were closely interlinked and reinforced the stress in the financial system. one of the key lessons from the history of financial crises is that the negative externalities of excessive leverage and associated liquidity risks that give rise to systemic risk provide a fundamental rationale for macroprudential policies. these limit the build - up of leverage in the financial system in a pre - emptive manner. in pursuit of excess returns, market participants engage in excessive leverage without internalizing systemic costs of their risk - taking behaviour. these comprise spillovers to counterparties and financial networks [ 7 ] or asset price declines triggered by fire sales. [ 8 ] a large and growing literature [ 9 ] supports the conclusion that these systemic externalities of excessive leverage call for macroprudential policies that restrict the use of leverage pre - emptively, as a way to improve general welfare. the next crisis will likely come in a different form and perhaps involve different markets and entities, but history tells us that it is a fair bet to say that excessive leverage will again play a major role. to the extent that derivatives and securities financing transactions ( sfts ) are the main means to create leverage, in particular in the non - bank financial sector, this calls for pre - bis central bankers ’ speeches emptive regulatory action in these markets. let me now explain in more detail why i believe we should equip macroprudential authorities with the power to set margins and haircuts. macroprudential margins and haircuts as tools to control leverage and avoid liquidity spirals margins and haircuts are a determinant of the build - up of leverage via derivatives and sfts, and are strongly interlinked with the procyclicality of that leverage. for derivatives, the initial margin determines the amount of exposure that can be created for a given amount of equity. in turn, the size of the haircut on sft collateral, particularly in repos, determines the amount of funding market players can obtain for

full potential. this might include harmonising the creditor hierarchy, introducing a general depositor preference and removing the overlap between supervisory and early intervention measures from the relevant european legislation. facilitating bank m & a outright failures are one way for non - viable banks to exit the market. mergers and acquisitions provide a second option. nonetheless, we are seeing very little consolidation – either within, or even less so, across borders. there are several reasons for that. uncertainty plays an important role. for a long time, the fear of a euro area break - up kept banks from engaging in cross - border adventures despite the long recovery. this fear should have receded in the same way that regulatory uncertainty has. but there are also other sources of uncertainty. digitalisation, for instance, puts a question mark over the value of large branch networks. in the future, scale might become less of an issue for physical distribution capacity. and then there is uncertainty about bank valuations, which are low across the board. potential m & a targets might not want to sell at what they consider a rock - bottom price ; at the same time, potential bidders might lack confidence because of their own low valuations. in general, many banks still focus on deleveraging and cleaning up their balance sheets as a prerequisite to focusing on growth. this illustrates that consolidation cannot be the panacea. merging two weak banks will not magically produce one strong bank. likewise, when a bank that is in good shape takes over a weaker one, this may not necessarily result in a strong institution, but could actually lead to a larger, less healthy bank. structural inefficiencies are best dealt with at the level of the institution in which they originate. we should not expect them to simply evaporate in the course of a merger. but obstacles to consolidation stem from more than just divergence in national insolvency and tax laws. i have also heard questions regarding the implementation of existing regulations, such as capital treatment of liquidity waivers, the application of the new discretion on gsib methodology, the impact of npl disposals on internal model parameters, and the interaction with resolution strategies. the transposition of eu laws into national laws has also provided loopholes allowing preferential treatment. many countries protect their domestic banking markets by ring - fencing capital and liquidity. unresolved home / host issues may discourage cross - border m & a activity, because they prevent banks from freely allocating capital and liquid