It has fostered both price and macroeconomic stability through its credibility and has shielded many euro area countries from significant exchange rate volatility and financial market turmoil. It is all the more important to acknowledge these achievements since it was said in some quarters that the euro would never see the light of day or that it would create severe economic disruptions. Those scenarios have not materialised. In the post-war European adventure, the euro represents a major milestone. That said, and whatever its own merits, a currency is not an end in itself, even though the new EU members are keen on adopting it as soon as possible. Entry into Monetary Union must be founded on a sustainable convergence process. Enlargement of the euro area also gives renewed impetus to addressing the challenges ahead as it makes it more pressing for policy-makers to tackle long-ignored weaknesses. This is a crucial contribution to building a stronger EU, in which I strongly believe. All in all, let me express my confidence in the future of the euro and of the single monetary policy of a large Eurozone.
Not only would this more effectively capture the risks that banks are taking, but it also would create incentives to move the trading and settlement of such instruments more rapidly to central clearing parties (CCPs) and to exchanges. The greater use of CCPs and exchanges should have several benefits, including reduction of risk through the multilateral netting of exposures and improved transparency with respect to the structure and pricing for such instruments. 4  BIS Review 125/2009  Capital conservation More explicit supervisory standards regarding capital conservation would also be an important element of an efficient capital regime. During the crisis, some banks continued to pay out dividends even though their condition and market valuation metrics had sharply deteriorated. Banks did this to try to convince investors that their bank was “sound.” But by depleting capital, these actions made banks and the financial system weaker. To mitigate these dynamics, regulators could require the reduction and possibly the cessation of dividend payments and share buybacks during adverse market environments when particular triggers were breached. For example, limits on dividend payments and share repurchases as a share of earnings could be mandated to occur when common equity ratios fell below certain levels (recognizing that credit and mark-to-market losses deplete the capital structure from below) or when market-based measures hit certain trigger values. Taking away the discretion of banks to deplete capital would strengthen the banks’ ability to withstand adverse environments. In principle, such constraints could conceivably be extended to compensation and bonus payments.