Finalising design When I look at the remaining agenda of post-crisis reforms to be agreed, it is striking that they are not about capital levels in the same way that we saw immediately post-crisis. True, there is work in Basel but that is much more about refining the framework than a step change in capital requirements. As part of this there is work to agree and implement the leverage ratio internationally, and to improve the use of models to estimate capital requirements so that they are used only for asset classes that lend themselves to modelling of this sort and we have an acceptable degree of consistency across banks. There are two important points I want to draw out which are by no means uncontroversial. First, it is sometimes said that the banking system still needs markedly more capital, and that a focus on other issues is a distraction from tackling a system that is still over-leveraged. The second, closely-related, point is that we should focus much more exclusively on non-risk based measures of capital requirements. I don’t agree with either of these positions, and nor would I say do most supervisors I know. I have been and remain a strong supporter of the reforms to date and the higher levels of capital put in place, and I am a strong supporter of having the leverage ratio in our toolkit and that for some assets it is the “biting” approach and therefore it is not just a backstop.
Admittedly, the political agreement on the single resolution mechanism has some limitations, insofar as it does not entail per se the full lifting of national borders in respect of the management and resolution of banking crises. Unquestionably, though, the agreement marks decisive progress towards cross-country uniformity in the treatment of different bank liabilities in the event of viability problems and, in turn, it minimises the vulnerability of national public finances to bank crises, by ensuring that investors, and not taxpayers, will bear the brunt of the costs of these crises. In doing so, it does in fact successfully defuse many of the factors that have destabilised the monetary union over the past four years. At the same time, the creation of a single resolution mechanism is a vital complement to the single supervisory mechanism. It resolves the problems of legitimacy and compatibility of incentives that would have been generated by the relinquishing of sovereignty over the  BIS central bankers’ speeches  1  surveillance of the banking sector and crisis-prevention without concurrently having a common mechanism for managing and covering the ensuing consequences. Accordingly, the political agreements reached are added motivation for all those involved – the ECB, national supervisory authorities and banks themselves – in the intense preparations for the single supervisory mechanism.