, by contrast, would have an advantage, not least because at1 coupons are tax - deductible in most member states. to sum up : banks would become less resilient and the playing field less even. but let me come back to basel. the reforms we agreed on in basel do make sense, and they strengthen the resilience of banks. a key feature of the reforms is their global nature. they are designed to ensure not only safer and sounder banks but also a level playing field. so if reforms are not implemented as agreed, the playing field will become uneven, opening the door to regulatory arbitrage. but regulation is not the only game in town, of course. supervision counts too. and although supervisors need rules to guide their work, they see that not everything can be or should be captured by rules. global reforms such as those devised in basel and their transposition into european law cannot be perfectly tailored to each and every business model that banks pursue. at best, rules can cover the average case. this is particularly true in a sector that is changing as quickly as banking. so it is up to the supervisor to adapt the capital requirements to a bank ’ s specific risk profile in order to cater for deviations from the average case. to this end, the rules should be principlebased and leave sufficient discretion to the supervisors. in the european context, this need is even greater, as nowadays, we often have to deal with 19 slightly different national rules applying to the same case. 2 / 3 bis central bankers'speeches common principle - based regulation, applied to all 19 countries, would allow supervisors to cater for bank - specific risks in their national environment, thus ensuring a level playing field. so, let me conclude. the overarching question is : have the reforms so far helped to make the banking sector a safer place? my answer is : yes they have, but they still need to be finalised. the key point is to implement the reforms, to turn them into actual law. so, we cannot stand still ; we have to move on. and under no circumstances should we move backwards. thank you for your attention. 3 / 3 bis central bankers'speeches

few years. this progress has been achieved through the large - scale privatisation of state - owned banks and the extensive opening - up of the banking sector to foreign ownership. this process has contributed to greater financial integration with the eu and significant gains in terms of efficiency and stability. however, the level of financial intermediation remains relatively low and the provision of bank financing represents a much smaller share of gdp in the accession countries than in the euro area countries. furthermore, the financial sector of accession countries remains dominated by the banking industry, as capital markets are not yet fully developed. from an ecb perspective, further deepening of the accession countries'financial markets is needed to ensure the proper transmission of monetary policy impulses once they join the euro area, and it may also help these countries make full use of their growth potential. coping with any of the three challenges which i have just mentioned will have a significant impact on the design of monetary and exchange rate policies. taking into account the different starting points and progress made so far in addressing these challenges, accession countries may well pursue different approaches in the pre - accession phase. once in the eu, however, there is a clear path defined in the treaty that should be followed by all eu member states towards the adoption of the euro. first, immediately upon eu accession, the new member states have to treat their exchange rate policy as a matter of common interest. furthermore, in view of the final objective of adopting the euro, accession countries are expected to join erm ii at some point following accession to the eu. most accession countries have already expressed their intention to join the mechanism as soon as possible after their entry into the eu. however, it should be clear that erm ii membership does not need to happen immediately after eu accession in all cases, nor does erm ii membership need to be limited to only two years, which is the minimum for adoption of the euro. a longer membership of erm ii may, in some cases, be helpful since it would allow countries to retain the exchange rate as an instrumental policy variable during the catching - up process. participation in erm ii should thus be seen as a meaningful and flexible framework for increasing convergence with the euro area, and for tackling the challenges faced by accession countries on the road towards the adoption of the euro. finally, after having outlined the path along which the euro will go east, i would also like to say a few words about a path which i am confident will not be followed a