These two regulations must naturally be enhanced by proposals on the deposit guarantee fund and the crisis resolution mechanism, which are the two other essential pillars of the banking union. The ECB, and all the other national authorities concerned, must now continue the preparatory work so that the Single Supervisory Mechanism can become operational as soon as possible. The Banque de France and the ACP provide an important contribution and intend to play an active role in the new mechanism. This is particularly the case given that around a dozen major French banking groups will be subject, according to the criteria set out in the regulation, to direct supervision by the ECB, even though the ACP will remain responsible for day-to-day supervision. 2. Resolutely pursuing efforts to strengthen the resilience of the financial system by preparing for and implementing new regulations  The international financial regulatory framework evolved substantially in 2012, and will continue to do so in 2013. It is therefore particularly important to adapt to these changes. 2.1  The insurance sector must continue, in France and Europe, to prepare itself for the application of the new prudential regime, Solvency II  Admittedly, 2012 was marked by tough discussions about the Omnibus II Directive and in particular the question of the treatment of insurance products with long-term guarantees. These discussions were unfruitful and will delay the entry into force of Solvency II.
For example, euro-area banks have roughly € trillion to refinance in 2012, 80% of which is unsecured funding coming due. So far during 2012, only 20% has been rolled on unsecured terms, with the lion’s share on a secured basis (Chart 7). Central bank financing has played its part in this shift. Of the € billion raised on secured terms by euro-area banks so far in 2012, 80% has been associated with the ECB’s long-term refinancing operations. Gauging levels of secured financing by commercial banks is difficult. Technically, the fraction of banks’ liabilities that are secured against their assets is often called encumbrance. But data on banks’ encumbrance levels are thin on the ground. Where data exist, they are rarely on a consistent basis across banks. Some recent studies have suggested that the encumbrance ratios of banking systems within Europe may lie anywhere between 3% and 40% of their liabilities.26  25  Johnson et al (2012). 26  For example, Barclays Capital (2012). 6  BIS central bankers’ speeches  That is the arithmetic. But what explains this behaviour? This, too, appears to have an arms-race element. Consider an unsecured creditor about to refinance. The larger the existing fraction of secured financing, and the greater the uncertainty about this fraction, the greater will be their incentive to seek security. Not to do so runs the risk of other creditors leapfrogging ahead of them in the seniority queue.