It is as difficult to separate the institutions that support banking union from national fiscal arrangements as it is to separate the creditworthiness of banks and sovereigns. Let me explain. In recent years, doubts about the resilience of major financial institutions have created expectations of sovereign support. The scale of these potential liabilities can in turn generate doubts about public finances undermining the resilience of both banks and sovereigns. When such concerns emerge, the consequences can be dramatic. The banking systems of peripheral European countries experienced outflows of between 10% and 85% of total deposits from elsewhere in the euro area in the three years following June 2010 (chart 4). Bank funding spreads in those countries ballooned by 5 percentage points from the beginning of 2010 to the  18  Borders seem to matter. Trade between countries tends to be much more limited than trade within countries, as shown for Canada and the US by McCallum (1995). There is also evidence for a border effect for financial integration – there is more risk sharing through financial markets within countries than between countries (see e.g. Crucini 1999). Rose and van Wincoop (2001) assess to what extent national currencies are a barrier to trade, and find that trade barriers associated with national borders are halved when countries join a currency union. 19  Mundell (1973). Asdrubali et al (1996) estimate that for the US risk-sharing in private markets is quantitatively important in stabilising output at the state level.
I also implore management to provide support to various sectors of the economy, especially the priority sectors of agriculture, tourism, manufacturing and small-scale mining to effectively contribute to the development of the country. Ladies and Gentlemen, the introduction of the fourteenth bank in the banking sector will obviously come with its own challenges. For us at Bank of Zambia, this entails further strengthening of our supervisory capacity. We welcome this challenge and hope to rise to the  BIS Review 117/2008  1  occasion by providing adequate supervisory infrastructure and an environment conducive to conducting good business. In the past few years, the Bank has embarked on a process of strengthening its supervisory framework through various initiatives. One such initiative is the adoption of an enhanced riskbased approach to supervision (RBS). The enhanced RBS approach will entail more regular interaction with the banks than previously in order to understand and monitor activities and risks on a continuous basis. As part of the adoption of the enhanced RBS, the BoZ has formulated Risk Management Guidelines to banks which will serve as a minimum standard in their design and implementation of risk management frameworks, relative to their size and complexity. Further, in 2006, the Bank issued Corporate Governance Guidelines to all Financial Service Providers. The guidelines set forth a broad framework of fundamental governance principles to guide the actions of directors and managers. This will strengthen governance in institutions and minimize the risk of bank failures as a result of bad governance.