This brings me to the Basel III which not only addresses the shortcomings of Basel II but goes far beyond by introducing a variety of new concepts which have raised the bar in terms of global supervisory standards. Some of these concepts emerged from the various lessons learned exercises that were carried out following 2007, while others are a product of serious research and reflection by the global banking supervisors. Basel III has introduced some fundamental reforms such as elevating the status of Common Equity capital as the key component of Core capital. It also has introduced the concept of a conservation capital buffer and even more importantly an additional countercyclical buffer on top of the minimum capital  BIS central bankers’ speeches  1  requirements. Also Basel III has recognized that liquidity is as important if not even more important than capital for safety and viability of banking institutions. It has recognized that there must be limits on leveraging by financial institutions so that bankers are restrained from excessive risk taking. Basel III also has taken a serious and perhaps a much needed closer look at risks in trading and investment activities and particularly for derivatives and off balance sheet transactions. In July 2009, as an interim measure, Basel Committee had issued a document addressing the market and trading book weaknesses in Basel II for immediate implementation. This document is known as Basel II.5. Basel III goes much further with refinements in areas such as counterparty credit risk, Credit Value adjustments, etc.
The flow of corporate euro bond and equity issuance has grown significantly, though it is important to keep this in proportion: the stock of issuance outstanding in both cases is still - by some margin - lower than the US. (Domestic debt securities in the euro area, taking governments and corporates together, amount to the equivalent of around $ trillion, compared with some $ trillion in the US. And the equity market capitalisation of companies in the euro area amounts to the equivalent of around $ trillion, compared with some $ trillion in the US.) Since the launch of the euro, the focus of risk assessment in the corporate debt market has shifted from currency risk towards credit and liquidity risk. A growing number of companies in the euro area have been seeking external credit ratings. And an equity culture is beginning to take root in the euro area, despite the volatility in TMT stocks over the past two years. In Europe as a whole, for example, there were over 17,000 M&A transactions with a combined value equivalent to $ trillion last year. The second change concerns the integration of euro trading and settlement. Trading has increased in most euro markets, and dealing spreads have narrowed. Electronic trading and communication  2  BIS Review 11/2001  networks have greatly increased the reach of traditional financial markets, while allowing new providers to enter at relatively low cost.