, bank accounts, credit intermediaries ). one of the legislative initiatives that requires special attention is the proposal for a directive on payment services. the proposed directive, which is part of the wider single european payments area project, aims to establish a modern and harmonised legal and operational framework necessary for the creation of an integrated retail payments market, which would enable payments to be made more quickly and easily throughout the eu. the proposal also aims to introduce more competition in payment systems and facilitate the realisation of economies of scale. this will improve efficiency and reduce the cost of payment systems for the economy as a whole, an issue of high importance to the bank of greece, as electronic payments systems are not very much in demand in greece. future challenges supervisory architecture within the eu lately, several discussions have revolved around the issue of the eu supervisory architecture, one of the arguments being that the complexity of supervisory arrangements increases in parallel with the growth of a banking group's cross - border activity. without dismissing these concerns, we do not share the view that the conduct of cross - border activities is connected with a significant supervisory burden. on the contrary, the most important obstacles to the expansion of cross - border activity in the banking sector are the differences in the tax treatment of banking products among different states, cultural differences and the lack of proximity ( except in the case of branches ). different views on the supervisory architecture advocate alternative models of supervision, ranging from complete centralisation to total decentralisation. each approach has its own merits, but also raises a number of complicated strategic and operational issues that need to be addressed. i believe that in no way should extreme solutions be adopted and instead implement the lamfalussy approach, which though is not a panacea, has the definite advantage of allowing for a lot of flexibility. first of all, it provides for a range of different degrees of centralisation in the regulatory process, which would entail a more or less harmonised set of rules depending on the issues that need to be addressed. in this way, it facilitates the swift adaptation of community legislation to new developments in the financial markets, which in many cases have cross - sectoral dimensions. moreover, it boosts regulatory and supervisory convergence while at the same time allowing for the efficient handling of differences arising from the fact that the vast majority of the 8, 000 credit institutions in the eu operate domestically and sometimes even locally, in markets with diverse characteristics and which can better be assessed by local supervisors, as the

developments. the above considerations indicate areas where further assistance may be required by particular countries. apart from programs supported by international organisations, continuing recourse to bilateral co - operation arrangements between authorities of eu countries and those of see countries would be particularly useful. in this respect, the experience of the authorities of eu countries that have relatively recently completed the reform of their financial sector in accordance with international standards would be a valuable input to the authorities of see countries that currently face similar challenges. also, peer group reviews by financial sector supervisors from other countries could play a useful role in periodically assessing the effectiveness of financial sector regulation and supervision in each see country and in offering advice on needed improvements. finally, national banking federations of see countries can help to bring the operation of local banks up to eu standards through multilateral co - operation in the areas of staff training and convergence in the implementation of sound operating and risk management systems. to this end, the national banking federations participating in the interbalkan banking forum have recently signed a memorandum of understanding. it is important to recognize that, as the financial systems of see countries are liberalized and their economies become more open, the task of maintaining financial stability becomes more challenging. in meeting this challenge, i believe that arrangements for supervisory co - operation and the provision of technical assistance can continue to play a useful role in supporting national efforts for further regulatory and supervisory reform aimed at strengthening the resilience of the financial sector of see countries and achieving conformity with eu standards. let me conclude by stressing the importance of the financial system for economic growth. why is the financial system so crucial? the answer is that the financial system can be thought of as a coordinating mechanism that allocates capital to building factories, houses and roads. if capital is misallocated, the economy will operate inefficiently and economic growth will be low ( mishkin, 2005 ) 1. effectively, just as a high level of human capital increases the productivity of labour, so an efficient financial system increases the productivity of all factor inputs. for this reason, a financial system can be thought of as the central nervous system of an economy. if it is stable and efficient, it coordinates the economy ’ s activities, helping to improve the living standards of its citizens thank you for your attention. mishkin, s. frederick ( 2005 ), “ is financial globalization beneficial? ” nber working paper no. 11891 ( december ).