Contagion across banks is widely perceived to be an important element in banking crises and thus a major systemic stability concern. For example, the private sector rescue operation of Long Term Capital Management (LTCM), which was coordinated by the Federal Reserve Bank of New York, was justified on the grounds of the risk of contagion to banks. Similarly, contagion risks transmitted through the interbank market played a major role in the decisions of the Bank of Japan to react to the failures of major Japanese securities houses in the early 1990s. Generally, however, evidence of the significance of contagion is fairly limited. This special feature analyses the risk of cross-border contagion for large European banks. After the near-collapse of LTCM in September 1998, recently hedge funds have again started to capture the attention of financial stability watchers. However, this time the renewed interest is motivated by their impressive growth and increasing proliferation as a mainstream alternative investment vehicle. Securities settlement systems form an essential part of the financial market infrastructure. If they are badly designed, they may contribute to severe disruption of the functioning of financial markets. Awareness of the importance of securities settlement systems is especially high in Europe, as the European securities settlement infrastructure has been changing rapidly in many ways. This Special Feature describes the most important reasons why robust securities settlement systems are important for safeguarding financial stability, and states how they should be designed to ensure that they do not contribute to instability in financial markets. On 26 June 2004, the central bank governors and the heads of banking supervisory authorities of the G10 countries endorsed the Revised Framework for Capital Measurement and Capital Standards, commonly known as Basel II or the New Accord. Basel II is the culmination of a highly challenging project that was carried out by the Basel Committee on Banking Supervision (BCBS) and its member agencies over a period lasting more than five years. Following the publication of the first round of proposals in June 1999, two additional consultative packages were circulated in 2001 and 2003 for comments, involving industry representatives, supervisory agencies, central banks and other observers in all member countries. For many countries the next step will be the implementation of the Revised Framework by the end of 2006, according to the timetable developed by the BCBS. The deadline for the implementation of the most advanced approaches to risk measurement foreseen by the new framework is the end of 2007. This Special Feature provides an overview of the comprehensive approach of the New Accord, placing emphasis on the innovative elements of Basel II and relevant aspects from a financial stability perspective. It concludes with an assessment of the key remaining challenges for a successful implementation of the New Accord. The household sector is one of the key sectors for financial stability analysis in EU and in the euro area for two main reasons. Firstly, the household sector accounts for a significant proportion of non-bank lending in terms of the stock of credit outstanding. At the end of June 2004, approximately 30% of loans granted to euro area residents were to households. By contrast, about 25% were granted to non-financial corporations. This share has not changed very significantly since the start of EMU.