This reaction seems to reflect the incentive of managers and shareholders to  23  Indeed, in the context of the recent turmoil, while the annual growth in undrawn credit lines, following an increase up to mid-July 2007, has been on a declining trend and moved into negative territory in the course of 2008, the annual growth in the draw-downs of credit lines has been increasing up to the third quarter of 2008. 24  This is based on information derived from the Eurosystem’s Bank Lending Survey. favour remuneration on equity and human capital, rather than long-term investment. This is not in line with the macroeconomic objectives. This is why we insist that the profits made in these months by the banking sector – which were obtained thanks to the interventions by the policy authorities to keep the system going, and thus ultimately by the taxpayers – should be used to increase the capital rather than to reward the banks’ managers and shareholders. This applies not only to banks that have received direct assistance through guarantees and public capital injections, but also to the indirect benefits obtained as a result of low interest rates. 5. Conclusion  The pre-crisis period was marked by unsustainable credit policies by the banks and, more generally, by the financial system. These policies were encouraged by inadequate supervision and slack prudential regulation, and also by the excessive influence the financial system had on regulatory mechanisms. This caused the biggest crisis of the post-war period.
Various proposals have been formulated in this regard, including: strengthening the capital requirements for counterparty credit risk exposures arising from derivatives, repos and securities financing activities; a leverage requirement (capital divided by total exposure) to put a cap on the level of leverage in the banking sector; and internationally harmonised global liquidity standards, including a liquidity coverage ratio and a structural ratio (measuring the amount of longer-term stable funding sources to cover the liquidity needs for funding assets over the period of one year). Finally, governance of financial institutions must be strengthened, for instance with regard to remuneration incentives. 13 The regulatory community is well aware of the fact that the reform must be introduced in an ordered manner in order to ensure the resilience of the financial system as a whole, while also supporting economic growth over the longer term. The proposals are currently the subject of extensive consultations with the banking system. In addition, an impact study will be conducted to assess the implications of the various measures. Based on the outcome thereof, the aim is to arrive, by the end of 2010, at an appropriate calibration for the new requirements in terms of the level and quality of capital, in order to find a balance between financial innovation, financial stability and sustainable economic growth. The Basel reform will be phased in gradually as financial conditions improve and the economic recovery strengthens, with the aim of implementation by the end of 2012.