impact of its failure on the financial system ( “ living will ” ) ; ( iii ) to intensify supervisory oversight for sifis ; ( iv ) to strengthen core financial market infrastructures to reduce contagion risk from failure. 2 challenges imposed by liquidity rules though it is highly welcome that the new rules tackle liquidity risks, the new requirements for liquidity management could themselves become a source of instability. one reason is that the regulators ’ definition of liquidity is highly concentrated on government bonds. as the current environment shows, some market segments of government bonds can eventually dry up. another reason is the respective definitions of the net stable funding ratio ( nsfr ) and the liquidity coverage ratio ( lcr ). – the lcr is the main component of basel iii ’ s liquidity regime. it is also known as the “ bear stearns rule ”. it requires banks to maintain a stock of “ high - quality liquid assets ” that is sufficient to cover net cash outflows for a 30 - day period under financial stress. – the nsfr seeks to counter maturity mismatches in the balance sheet of financial institutions. it calculates the proportion of long - term assets, which need to be funded by longer term stable funding. while the lcr stresses the liquidity situation up to 30 days, the nsfr focuses on the situation beyond one year. assets which are liquid for more than 30 days and less than one year are not taken into account, not even on a weighted basis. however, the basel committee on banking supervision ( bcbs ) has recognized this shortcoming and is investigating the issue. in addition, there is the risk that the reformed banking regulation has damaging impact on the european model. the treatment of covered bonds, mutual funds, deposits etc. in the liquidity ratios affect the business model oft many continental european banks. one can also question whether the main victims of the new rules will not be the european universal banking model which was certainly not at the origin of the crisis but constituted an anchor of stability. finally, the lack of a resolution framework for cross - border financial institutions remains on the agenda. in spite of the insight, that the reform of regulation and supervision cannot be successful at the national level alone, it is still unclear how the costs would be distributed if a cross - border institution would get into difficulty and should need to be saved. financial stability board, macroprudential policy tools and frameworks : update to g20 finance ministers

yves mersch : international financial centers after the crisis speech by mr yves mersch, governor of the central bank of luxembourg, at a lunchconference of the blc ( business club belgo - luxembourgeois en suisse ), zurich, 23 may 2011. * * * ladies and gentlemen, it is my pleasure to talk in front of this distinguished audience about the challenges of international financial centers after the crisis. i would therefore like to thank business club belgo - luxembourgeois en suisse for inviting me to this conference breakfast. the worldwide scenery of international financial centers is in transition. the respective locations face massive upheaval as global competition and the post - crisis reforms in regulation and supervision begin to bite. in order to overcome the challenges of a changing environment and to identify the potential opportunities, it is important to distinguish between the different drivers. a large part of the challenges financial centers are facing, are due to regulatory changes, which result from the reform in the aftermath of the financial crisis. in addition there are global trends that have been going on already before the outbreak of the financial crisis and which continue to have an impact. i will refer to these major sources of change in more detail in the course of my talk, provide some experience from luxembourg, and will discuss the shortcomings and remaining challenges of the new regulatory framework. international financial centers – hit hard by the global crisis the high degree of integration and interconnectedness of financial markets contributed to the amplification and spread of the financial crisis around the world. the crisis had devastating effects on both the banking sector and the real economy, in particular in international financial centers with a high concentration of activities in banking, trading etc. they are the nodes of a global network. by consequence, the global financial crisis hit luxembourg ’ s open economy and internationally - integrated financial center – although relatively less than the neighboring countries, such as germany and france. luxembourg is the world ’ s second largest investment fund center in terms of size ( after the united states ) and the largest in terms of interconnectedness, the most important private banking center in the euro zone and europe ’ s leading center for reinsurance companies. moreover, luxembourg is among the 25 most systemically important financial centers in the world. at the height of the crisis, luxembourg ’ s sizeable investment fund industry endured substantial redemptions and its foreign - subsidiary dominated banking system experienced a sharp drop in the aggregate balance sheet as well as in the off - balance sheet positions.