22 It is hard to say for certain when SORA liquidity will exceed SOR liquidity. But based on our planning parameters, it is likely that the ‘sweet spot’ for active transition could be between mid 2021 to early part of 2022, when SORA markets would have deepened suﬀiciently while SOR derivative liquidity still exists before declining subsequently. This period of trading will provide the most robust SOR-to-SORA pricing references for transition of legacy contracts. 23 One final word, pertaining to retail loans. Retail customers that are on SOR packages will need to transition as well. The SC-STS will be embarking on a media campaign in 2Q 2021 to educate the wider public of this important shi . Retail investors with SOR exposures should be hearing from their banks over the course of this year and next, on the options regarding their loan packages. Conclusion 24 In conclusion, as we enter into 2021, I am glad that we are starting the year with some good news – that with the IBA consultation, we are likely to have more time to manage legacy transition. Nevertheless, it is important to use this extra time wisely, and sequence our legacy transition activities deliberately and purposefully. 25 From SC-STS’ point of view, we have made much progress last year in laying the foundations for the transition. For this year, we want to maintain our strong momentum, and achieve good depth and liquidity for SORA markets by the middle of the year.
The new rules contain sufficient flexibility to deal with exceptional situations where public money may be required to ensure financial stability. Second, public risk sharing. A certain level of public risk sharing is necessary to create confidence in the overall financial system. Even wellcapitalised banks can fall victim to runs and contagion. This is why central banks act as lender of last resort and fiscal backstops should be in place to ensure trust in the stability of the financial sector. In the Banking Union, both supervisory responsibility and the fiscal backstop need to be at European level, to underpin durably confidence in the area-wide financial system. Just as necessary is the establishment of a European Deposit Insurance System (EDIS). The current situation, where supervision is common, but the consequences of potential bank failures are still predominantly national, should not last. In such an incomplete framework, national considerations inevitably continue to affect supervisory decisions. This is not without consequences for the incentives for banks to become more European. Concrete examples include a lack of fungibility of liquidity or capital. The fact that the euro area is not considered as a single jurisdiction may result in applying higher capital buffers to euro area G-SIBs. While the institutional underpinnings of the Banking Union do not yet meet the requirements of a genuine single financial market, the creation of the SSM has been a leap forward in the establishment of a coherent regulatory framework.