The above considerations suggest that work still needs to be done to induce banks to be active again in markets. However, it should be recalled that ultimately, the main factor behind the malfunctioning of the interbank market is counterparty risk, and this risk can disappear only if the commitment to avoid bank failure is credible.
As I recalled in a recent speech, euro area countries have committed themselves solemnly, at the 12 October Paris meeting, to ensuring adequate capitalisation of the banks.21 The implementation of this commitment is lagging. Furthermore, the meaning of “adequate” is subject to interpretation. Supervisory authorities continue to use their regulatory measures, and rightly so.