This reform agenda is very ambitious and time-wise rather tight, but before describing the measures under discussion, let me first briefly introduce the main actors in this area. The G20 provides the political and strategic impetus for the reforms, with the Financial Stability Board (FSB) playing an important role in the policy coordination. Various committees and working groups, of which the most prominent is the Basel Committee on Banking Supervision, are charged with reviewing specific international standards. As regards the reform agenda, the most important issues are the following:   the adoption of high-quality capital and liquidity standards for banks,    measures to reduce the financial system’s procyclicality,    the introduction of a regulatory framework for systemically important financial institutions,    the regulation of credit rating agencies and hedge funds, improving OTC derivatives markets, and    finally, sound compensation practices that support financial stability. These issues are comprehensively addressed by the Basel Committee’s reform package that aims to strengthening the banking sector’s resilience and represents a cornerstone of the response to the crisis. The package, which was released at the end of last year for consultation, aims at improving the quality and consistency of bank capital. It also considers the introduction of a non-risk-based leverage ratio as a supplementary capital measure. This leverage ratio is expected to curb excessive balance sheet growth and to set a floor for the Basel II capital requirements.
In the pursuit of this objective, we also try to draw as much as possible from synergies with existing work and resources both within the ECB and the ESCB, as well as at the supervisory authorities. I conclude on this point that the establishment of ESRB will be a watershed event in developing a macro-prudential framework for Europe. Having said that, I should also say that the ESRB does not have an easy mission and it certainly faces many challenges. Macroprudential supervision is relatively new, which implies that a well-established framework with a clear operational objective, as we know for monetary policy, must yet be set in place. The ESRB will therefore have to develop its own thinking and strategy, and will probably have to advance in a pragmatic way. The interplay with the micro-prudential function will be crucial, not only because the ESRB will have to rely to a large extent on micro-prudential supervisors for the information and the data, but also because a number of the tools that can be expected to address potential weaknesses in the financial system are of a micro-prudential nature. In that respect, I should recall that the ESRB will not have any binding powers but will have to rely on moral suasion and peer pressure for the follow-up to its risk warnings and recommendations. And finally the ESRB will have to strive for effectiveness and efficiency in the pursuit of its tasks, given its relatively wide composition (over 60 members).