access to central bank liquidity, has created a kind of informal euro area liquidity assistance. furthermore national ela operations need to be flagged by the governing council and allow for extensive information sharing reinforced by bilateral contacts on a “ know as you need ” basis. crossborder institutions benefited from nationally coordinated ela, not only in the benelux case of fortis, but involved in other cases extensive cooperation between 2 or even 3 countries. an eu - level crisis resolution framework, especially for systemic banks, is however pending. like crisis prevention and management, crisis resolution was fundamentally national up to this crisis. differences across countries ’ approach to financial institutions ’ failure vary enormously. even for banks, there is little harmonization. some countries have only a few bank - specific regulations ; general commerce bankruptcy laws apply despite the winding up directive after bcci. as shown again during the current crisis, banks have a liquidation value that is well below their value as going concerns. so, recapitalization is less expensive than liquidation. in the case of a large cross - border banks ( lcbb ), the problem is even worse as the focus of bankruptcy law is on the right of creditors in some countries, protecting debtors in some others. yet, the disparate history of legal regimes in the eu suggests that institutional changes will be slow. also, despite moves in deposit insurance toward harmonization, notably via the deposit insurance directive, there are glaring differences across countries regarding the definition of deposits, co - insurance, risk - based premia, and funding. this situation creates perverse incentives, uncertainty, and regulatory arbitrage opportunities. since the crisis, however, change seems to be faster. the provision of recapitalization funds and guarantees for bank debt, though nationally implemented, will follow common rules. yesterday the eurosystem agreed on 10 recommendations sent to national governments covering pricing modalities, timing, eligibility criteria, etc.. at a cross - border level, as no eu agreement exists on the financing of insolvent institutions, home country authorities may be reluctant to spend resources that will benefit host countries, or will be faced with situations in which they will not be able to save financial institutions because they are “ too big to save ”. on the other hand, host countries may not be able to restore the bank as a going concern because the subsidiary may not be viable. an eu - level framework with ex - ante fiscal cost sharing mechanisms should move national authorities

a lack of transparency ) led to a drying up of liquidity and an increase in bank funding costs. that turmoil accelerated dramatically this september, moving far beyond liquidity problems to a more acute and broad - based crisis of confidence, sparked by a series of failures and near - failures of financial institutions in the united states and europe, and increased prospects of a world recession. as a result, wholesale funding markets came to a standstill in many countries, and commercial banks essentially stopped making unsecured loans to one another at terms longer than overnight. the crisis rippled through various markets as investors became very risk averse. corporate bond spreads surged to new all - time highs, equity prices plunged, and foreign exchange rates became very volatile. investors'concerns about the impact of the turmoil on the global economy turned into a vicious circle. financial institutions became increasingly reluctant to extend credit, given their own funding difficulties and their concerns about what an economic slowdown would imply for the credit quality of their loan portfolios. tighter credit conditions and the increased difficulties that businesses faced in trying to raise funds have, in turn, contributed to the slowdown in the world economy. another contributing factor was the drop in consumer confidence triggered by the wealth destruction that resulted from sharp falls in equity markets and housing prices. the combination of these factors has produced extremely volatile and difficult financial conditions, and what has become the deepest, broadest, and longest financial crisis since the 1930s. in response, governments and central banks around the world – including the bank of canada – have undertaken a series of unprecedented actions aimed at stabilizing the financial system. these include making available significant overnight and term liquidity to a broad range of market participants ; guarantees of bank deposits and borrowing ; purchases of bad assets ; and capital injections for financial institutions. the g - 7 plan of action announced in early october has provided the foundation for urgent and unprecedented measures to stabilize financial markets and restore the flow of credit, essential to continued economic expansion. importantly, it included a commitment from g - 7 leaders to use all available tools to support systemically important financial institutions and prevent their failure. governments in industrialized countries and in some systemically important emerging - market economies have also pledged to take steps to encourage economic growth and to reduce the severity of the global recession. canada ’ s response consistent with the g - 7 plan of action, the bank of canada has acted swiftly to ensure that adequate liquidity is available to institutions within our borders. our actions have been significant.