and other operations in the interbank market. however, the infrastructure for transferring financial assets for trading and collateral operations was left fragmented. while the cash side had reached a high level of integration, securities still had to be settled in over 30 different systems in europe. t2s discussions were therefore initiated with the market on how to integrate the securities landscape, especially in a financial market where securities are used more and more as collateral to generate liquidity. the idea was put forward that the eurosystem could provide settlement services for securities transactions in central bank money. the european parliament and council were among the first to support this idea. thanks to your bis central bankers ’ speeches recommendation, the scope of t2s was extended and it has been built as a multicurrency system. the objective of t2s was to create an integrated infrastructure which would support capital markets on a european scale. until now, the securities landscape in europe has been characterised by numerous securities settlement systems, divergent laws governing securities depositories and different rules for post - trade processes. this is highly inefficient, increases risks and leads to a significant waste of resources. t2s has started a process that will change this completely. t2s will in fact bring numerous benefits, including the following. 1. processing costs for cross - border transactions will decrease drastically. 2. it will foster safety and financial stability by settling securities directly in central bank money. 3. it will allow for economies of scale without requiring that securities depositories be merged. in the t2s model, securities depositories are the gateways through which market participants can access securities in t2s. securities depositories will maintain all other functions such as their notary role, asset servicing and services for issuers. 4. last but not least, t2s will facilitate collateral management for market participants as it will make it easy to transfer collateral across borders. this is a key feature because demand for collateral has increased since the financial crisis, owing to both market conditions and new regulation. t2s governance structure and the first migration wave i would like to spend a few moments on the governance structure of t2s as i believe that it is one of the reasons for the success of the project. if i were to show you the t2s governance chart, you would probably describe it using the word “ complex ”. i would tend to agree that a four - level governance structure with hundreds of institutions involved is complex. however,

will demand high returns on government debt to offset higher expected inflation. so the game ends before it has even started. in the new world, the sargent and wallace story has lost some of its descriptive and predictive power. the fiscal authority is confronting a strong player with institutional backing. and certainly in europe ’ s monetary union, the central bank is as strong and institutionally established as the fiscal authority. if the fiscal side does not adjust, inflation risk mutates into liquidity risk. in the most severe cases, if the fiscal adjustment is delayed, liquidity risk turns into solvency risk as you know, markets have learned to become more discriminating with regard to fiscal solvency than they have been for decades. countries with comparatively see : t. adrian and h. s. shin ( 2008 ), “ liquidity and leverage, ” frb new york staff report no. 328. see : g. b. gorton and a. metrick ( 2009 ), “ haircuts, ” nber working paper no. 15273. see : v. v. acharya and p. schnabl ( 2010 ), “ do global banks spread global imbalances? the case of assetbacked commercial paper during the financial crisis of 2007 – 09, ” paper presented at the 10th jacques polak annual research conference, 5 – 6 november 2009. better managed public finances will pay lower risk premia, and therefore lower interest rates, which, in turn, will help them to keep budget deficits and the stocks of national debt under control. countries with larger budget deficits and higher stocks of national debt, on the other hand, will face higher risk premia, and therefore higher interest rates, which, in turn, will affect their ability to control the dynamics of their public finances. how will a central bank committed to price stability and endowed with the constitutional guarantees necessary to enforce a price stability - oriented policy pursue its mandate in a high - debt / high - risk environment? sovereign securities have traditionally been the prime form of collateral for central bank credit. in the future, given the greater importance of this type of debt instrument in the total portfolio of the economy – to which i was referring before – this primary role is unlikely to diminish. so, a central bank will continue to emphasise strongly the maintenance of orderly market conditions for this type of instrument. the ecb ’ s securities markets programme has demonstrated how critical it is for a central bank