It would also render it more difficult to extend the lender of last resort function to its own credit institutions. •  Finally, the country would also lose seigniorage revenues. In short, unilateral euroisation is not a panacea. Its benefits are uncertain, whereas the costs are real, and the risks serious. In particular, it should be stressed that euroisation is not a “quick-fix” for structural problems or external pressures. Admittedly, euroisation would provide some shelter against adverse winds coming from the outside. In a way, the euro can be likened to the armours worn by knights during the Middle Ages. Of course, an armour provides a shield against external hits. However, an armour can also limit the freedom of action and restrain flexibility. It can give a false sense of security. The effects of euroisation are similar. It can attenuate external pressures in the short run. But it does not solve the problems underlying these external pressures. If no action is taken to solve these problems, the pressures will be building up. What about a partial euroisation sponsored by the private sector, as opposed to an official euroisation? I will not dwell much on this issue. Clearly, the potential benefits are more limited, whereas some of the costs may be less acute. Similar experiences with dollarisation in some countries show, however, that such a partial euroisation entails some serious risks for citizens, business, banks and the government alike. BIS Review 17/2008  5  Conclusion Let me conclude. 1.
The condition of the banks which perform the financial intermediation function is of key importance for the whole economy. This accounts for the Bulgarian National Bank’s enormous responsibility for the fulfilment of the mandate entrusted to us by law and specifically for maintaining the stability of the banking system. This requires that we stay traditionally focused on the high capital and liquidity requirements for banks. These requirements are not ends in themselves, but follow from the need for banks to have reserves at hand. On the one hand, the reserves allow them to absorb costs and losses arising from the worsened quality of assets in the adverse macroeconomic environment. On the other hand, they support banks’ lending capacity. Consequently, it is logical to expect that we would continue to apply the measures of the anticrisis package, approved in March this year. Furthermore, we analyse, on an ongoing basis, the situation, and as a macroprudential supervisory authority we consider the likely scenario of a worsening economic crisis and the related significant deterioration in loan portfolios. Under this scenario, banks may need to temporarily operate under the combined capital buffers requirement, being ready to draw up and implement plans for rebuilding them. The prospect of continuing negative developments in the economy is a reason for us to expect materialization of credit risk and deteriorated quality of assets on banks’ balance sheets. It seems very likely that the trend of decreasing amount and share of non-performing exposures, seen over the last few years, may reverse.