It will probably only create a host of new problems, while a number of ways of fencing in collateral still remain. For example, one would probably want to avoid that a bank in distress places all of its US treasuries in a country outside of the jurisdiction of the ECB, while only letting its bad loans and other lower-quality collateral be within reach of Frankfurt… Moreover, one must realize that, within a cross-border bank, liquidity shortages can occur in other currencies than the euro, and one will have to find ways to handle this, for example through prearranged swap agreements. I realise, of course, that achieving such a supranational system is a long-term process and it will inevitably going to be politically difficult, and I’m sometimes confronted with the view that it will take a major banking crisis before we’ll be able to muster the resolve to achieve it. However, as a European policymaker, I cannot accept this view. We have a definitive responsibility, and just because things are difficult we cannot let that stop us from trying. And, if a supranational solution is limited to the forty or so of the most important cross-border banks, it may not be so inconceivable, after all. Financial integration is inevitable and necessary if we are to achieve an efficient financial system and to foster growth in Europe. And when integration takes off it tends to follow the logic of business, and not the "logic" of country borders or national laws.
2  BIS Review 27/2001  Modified capital requirements Let me begin by explaining what we are doing to ensure that the capital held against loans made to small and medium-sized companies is truly reflective of risk. The Committee has on two occasions over the past year asked banks to assess the impact of the revised Accord. The data gathered have enabled us to evaluate the level of capital that our proposals would generate and to consider several modifications. As you may know, our early findings suggested that the internal ratings-based approach as outlined in the Second Consultative Paper would have required banks to set aside too much capital. Contrary to the Committee’s clear intent, banks would not have received a capital incentive for adopting this more sophisticated approach to capital adequacy. As a result, we had to adjust the capital requirements to provide banks with the right incentives under the new framework. The Committee’s aim is to avoid unintended consequences stemming from the new proposals. That’s why we are taking additional time to make sure our proposals are right. To this end, we published in November a change in the IRB formulas for calculating bank capital requirements. This change – based on the Committee’s internal research as well as additional input by bank risk management experts – reduces the extent to which capital will vary with the internal ratings banks assign to their exposures.