 I have to start with the obligatory disclaimer that everything that I will say, although scripted, is effectively my views and I'm just speaking on my personal capacity. It's particularly critical that this juncture, given that as I speak negotiations are ongoing in Brussels, both between Parliament and Council in the presence of the Commission as well, between Commission and Council on very two important pieces of legislation, BRD and SRM. And it is really critical that both of those pieces of legislation get passed and adopted and entered into force at some point in the near future. Some would say not just as a precondition for growth in Europe, but really as even to ensure that the idea of the single market for financial services remains alive and even Europe integration itself. So let me start off by going back to where we come from, why we are currently, as I said, discussing with Council and parliamentarians how to solve the problem that we encountered five years ago. The recent crisis made it clear that neither the EU nor the United States had a coherent regime for resolving systemically important financial institutions. Perhaps nothing illustrates the lack of an effective framework at what happened with Lehman Brothers in that now infamous weekend in September 2008, where in the course of two days Lehman Brothers was allowed to fail without any plan, without any preparation whatsoever. And then two days later AIG had to be rescued again without any plan or preparation whatsoever. The truth is that governments face an intolerable trade-off between preserving stability in the short term through bailout and enhancing stability in the long run by enhancing market discipline. Political pressures and the fact that the long run is irrelevant, unless system can survive the very short run, have led to an unprecedented government interventions across most countries hit by the ongoing financial crisis. The lack of appropriate resolution tools too often results in hastily arranged bailouts negotiated over chaotic, sleepless weekends. Many of you may have been participating in some of those, in fact. Most of the problems that plagued the authorities in the recent crisis could have been anticipated from early in banking crisis. This is the sad truth. I mean, these lessons include the danger of uncoordinated actions by authorities, the first mover advantage in the clear and bankruptcy, sensitivity of markets to unanticipated behavior by the very same authorities that regulate them, the challenge of resolving an institution with substantial international corporate complexity, the disruptive impact procedures to institutions that have been actively engaged in trading, the profound differences in resolution procedures and bankruptcy laws, and the ambiguous benefits of close-out nettings. We knew from past banking crisis that all those problems were there. However, unfortunately, SCAN existence evidence exists that much had been done about it prior to 2008. No major advances were made in national resolution policies or in the coordination of resolution policies across countries. Indeed, as financial activity became more concentrated in fewer, increasingly larger and more complex institutions, the financial system became more vulnerable to the problems exposed in those very same early crisis. The ongoing financial crisis has made it clear that the system needs a radical overhaul. I think there's a general consensus about that. This time, it's actually make or break. Banks, in particular in the EU, have gradually mutated, at least in my personal opinion, from too big to fail banks into too big to save banks. So let me tell you what's the diagnosis of why all of this happened. And implicitly and somewhat subtly, I hope by giving you my own view of why it all happened, I also illustrate what the red lines I think should be in that context of these discussions that are ongoing in Brussels and hopefully will be completed in a few weeks with regards to BRD and possibly a little later on SRM. The response by policy makers to deal with the contagion risk on the drying up of international financial markets as well as the Lehman Brothers shocks was actually quite swift. It benefited from the lessons learned during the Great Depression. Central banks provided enormous amounts of liquidity, foreign exchange swap facilities and even function as purchaser of last result in many asset markets, that's particularly the case in the US. Soon, it became clear, however, that many financial institutions did not only face liquidity but also solvency problems. Quickly, a gap became apparent. While central banks coordinated well during the crisis to address the liquidity crisis in international financial markets, regulators did not coordinate well when it came to dealing with failing financial institutions. Why this gap? Was it purely a lack of preparation or experience to deal with that situation, a lack of misunderstanding? As mentioned earlier, we had experienced many of these before. We had learned some lessons before. In my view, personal opinion, it was because limited resolution options that led to the inefficient resolutions, there were limited resolution options and this led to the inefficient resolution of large European banks. At the same time, there were rather biased incentives of regulators and a lack of adequate coordination. Let me start with the first of those problems. The absence of domestic resolution frameworks. I mean, a few examples actually illustrate this better than the costs that what happened at the time when Northland Rock was belly-up. You saw queues at time branches in Northland Rock until 2007 and despite being a medium-sized retail bank, Northland Rock's failure caused systemic disruption and put taxpayers' money at risk. Regulators at the time had the option of either closing banks and liquidating them through the regular corporate insolvency process or bailing them out through recapitalization or guarantees. Now, the first option of closing and liquidating a bank through the regular insolvency process carries the risk of bank runs, of contagion and in the case of commercial banks, destroying lending relationships and thus probitory information that is valuable for the real economy. The repercussions of closing Lehman Brothers and sending it into liquidation have not only made it clear these risks but they have also ensured a subsequent policy bias against this option across the globe. The second option, the one of bailout, does not only carry moral hazard risk but also draws on some fiscal resources, at least in the case of large banks and thus requires approval of finance minister or even legislatures and one would argue has indeed led to these failed embrace between many banks that needed to be supported and member states in the periphery which may not have had as deep pockets and one would have thought. Now, options to avoid the moral hazard were not available by intervening at an earlier stage, say before the bank hits the seriquity mark through either, say, PROM corrective action regime by allowing for merger and acquisition, by purchasing assumption of part of the failing bank, traditional, well-tested, certainly in the U.S. and Canada, resolution tools. And to avoid taxpayer bailout, losses may need to be imposed in a wide class of bank creditors, including holders of debt as well as equity by bailing. These are some of the key lessons that have shaped the BRRD and its entry into force would ensure, one hopes, that these lessons are in the future enshrined in the banking legislation across the EU. What about the second problem, a supranational gap and lack of coordination, the one that, at least partially, the single resolution mechanism is trying to resolve combined with the creation of the European Banking Authority. Well, the second problem was that the increasing cross-border nature of banking was not accompanied by a regulatory framework on the supranational level. While monetary policy and, therefore, unofficially the land of last resort facilities were unified within the Euro area and the level of ACB, no similar institutional arrangement existed on the regulatory level. The negative effects of the lack of a proper failure resolution framework were exacerbated by the lack of a proper coordination framework at the European level, which Mervyn King confirmed with a statement that banks are global in life but national in death. And while regulatory cooperation had been prepared with memorandums of understanding and EU regulations, those, at the end of the day, on the 11th hour turned out to be just paper. Colleges of supervisors exchanged information, but the ultimate decision to intervene and resolve a bank stayed with the lead supervisor, who in many cases during the current crisis at least had to involve the Minister of Finance as resolution required, fiscal resources. Now, the main efficiency of these existing cooperation arrangements is that incentives of regulators are not taken into account. Specifically, national regulators care first and foremost, as should be expected, about domestic depositors, domestic borrowers, domestic owners, and ultimately domestic taxpayers. Indeed, they're ultimately accountable to national governments and boaters. Take the example of Icelandic banks, which you all know very well. They were domestically owned, but with large shares of foreign deposits and assets. It was not until very late in the game that the Icelandic supervisors acknowledged the dire situation of several of their banks, or the three banks. The situation was in fact exacerbated by the fact that the Icelandic banks were collecting many of their foreign deposits through branches rather than subsidiaries, over which host country supervisors do not have any control. Even in the case of subsidiaries, however, bear in mind that even though they're under the responsibility of the host country supervisors, banks can actually shift resources relatively fast between parent and bank, between parent banks and subsidiaries. So in addition to distorted incentives, lack of supervisor experience and limited fiscal resources, issues that we're all acutely aware of, all of this contributed to delaying intervention. And ultimately, the Icelandic banks turned out to be too big to save. Similar stories can be told about 40s in Dexia and a host of other examples. But in sum, inadequate domestic resolution regimes, in particular as regards large, complex, and interconnected banks operating cross-border, were facing a combined, with this lack of supranational coordination, a reinforcing effect, which actually magnified the problem quite dramatically. Now first, regulators may not even have had the legal authority to do what was necessary to resolve a distressed institution. Second, even if regulators had the necessary authority over part of the institution, they may not have had authority over the whole firm. Third, regulators are unlikely to be aware of all the interconnections within these institutions and between the institution's very subsidiaries and other firms. This uncertainty makes it difficult for regulators to know what best way to restructure a financial institution or bank, or indeed whether restructuring is even feasible without enormous disruption. So the consequences of all the above deficiencies is that, and I quote in the first EU report on the matter in 2009, in the responses to this crisis, member state authorities have tended to ring fence national assets of a cross-border group and apply national resolution tools at the level to the extent they existed, at the level of each entity rather than seek a group-wide solution. This of course undermines the goal of an integrated market for financial services and banking. Since in the case of bankruptcy, the definition of the claims on a bank is quite different depending on the country of residence, as foreign stakeholders will normally be discriminated in case of restructure. But then this begs the question. We already knew the potentially devastating effects of banking crisis, and yet we had managed to implement the dream of single currency for willing member states at least, we were truly ill-prepared for dealing with leverage cycle that itself exacerbated. So the resolving these banks, these large institutions, in particular, is so hard. You know, why continue, actually, to fight for the price of a single market? Is it really worth the fight? I would say it is. Again, there's widespread consensus that it is. Cross-border banking allows for risk diversification, reduces the volatility of domestic lending, reduces the impact of domestic runs. Foreign banks actually increase their resilience and the stability of the domestic banking sector. There is a possibility of cross-country risk-sharing. Cross-border banking enhances competition and stability. Competition itself increases quality and service. This is one of the things that competition does, even if it's not perfect. You can see that in many countries, penetration, for example, of online banking active, of online banks or subsidiaries. And all of this essentially ensures that an integrated financial market, despite the potential cost of contagion, actually isn't the benefit of all of the EU and should be promoted and protected. But how to do that? So what was the commission's regulatory response? Well, a competitive and dynamic integrated, the premise was and continues to be that a competitive and dynamic integrated EU market for banking holds this promise of this more efficient allocation of scarce capital towards projects that generate the most value added and does enhance growth and well-being of all the EU citizens. Now, this is the proverbial expansion of the pie. This is the one of the few things in which politicians and economists alike can agree, and I'm an economist myself. The problem is that the market mechanism for securing competent management is the prospect of failure. Competition cannot work without the prospect of failure. The crisis was reminded us that, whatever their origin, bank failures can be costly, may spread to other banks, and similarly endanger the solvency of non-financial firms. There are recovery and resolution frameworks which are designed to enable a failing bank, including a CFI, to be restored to viability or resolve partially or entirely in an orderly manner. And this should be done through advance planning and direct intervention by resolution authorities, with minimum disruption to the financial system and of course with minimum cost or zero cost to the taxpayer. Now, this last point, the cost to the taxpayer of bank bailouts is particularly critical for two reasons. First, the magnitude of the recent crisis has focused attention on resolution policy for the simple reason that too big to fail, as mentioned earlier, may have already mutated for certain institutions in central countries into too big to save. Andrew Howden has estimated the guarantees and subsidies extended by the US, the UK and the Euro area to support financial system have amounted to 25% of world GDP, up and including November 2009. It's probably greater by now. Not only are costs large relative to global output, but also in some countries, they're beyond the capacity of the national government to provide credible support. For example, our lines bailout in this very country of its banks has transformed a banking crisis into a sovereign debt crisis quite clearly. So how should the cost of these bailouts be measured when considering potential alternative resolution regimes? Well, it might be not just in cost of taxpayers and the strain on public finances and central bank balance sheets, but equally importantly, in the resources wasted, sustaining huge, zombie-like institutions that warehouse large amounts of dodgy debt rather than serving as youthful intermediaries. This delays economic recovery and the creative destruction that is the heart of dynamic capitalism. But a second problem, almost as worrying, is that the bailouts also intensify incentives for risk-taking by CFEs in particular and distort competition and will make future crises more frequent, larger and more difficult to imagine. Again, as Mervin King has stated, the massive support extended to the banking sector around the world, and particularly in Europe, has created possibly the biggest moral hazard in history. So what should be the objectives of a good resolution regime? Are these objectives enshrined in the BRD and in its equivalent in order to build a banking union? This is the SRM. Well, I think one question we need to ask ourselves, first of all, is how can we expect banks to perform their critical intermediation functions take risks and lend to the real economy whilst preserving financial stability in the event of bank failure and at the same time avoid all the problems associated with bailouts of moral hazard and too big to save? Well, there are essentially four complementary regulatory instruments for this. One is to increase regulatory supervision. That's what the SSM has intended to do. Another one is to increase capital requirements, make this institution safer. That's CRD4. We also have structural reform, which is intended to ensure that there are restrictions on certain activities that generate too much risk and actually being supported by implicit subsidies while not deserving that support because there is no market failure associated with providing those activities. But finally, and probably more importantly, is to give government resolution authority that needs to have in order to resolve banks and make sure they're not too big to fail. And the Commission has acted, of course, in all of those four fronts and I will soon in the structural reform front as well. But it is the latter, the resolution regime that is the most critical and, in my opinion, the most complex as it seeks to balance complementary but also conflicting goals, and it does so by inducing and changing the incentives of banks themselves. And when we look at the various features that the BRD package or proposal by commission has, as well as the SRM, the SRM, it reflects this fine balancing of these conflicting goals. Let me listen for you. Bank failure resolution has, first, three goals exposed. To protect depositors and avoid disruptive bank runs, to allow the continuation of borrower-lander relationship and prevent disruption to the economy, and to avoid any disruption or the payment and clearing system. Now, the first and third of those goals, those exposed goals, in particular, call for rapid intervention, preferably over a weekend when financial institutions and markets are closed for business. That is one of the goals of BRD, make this decision making fast and effective and primarily quick, non-disruptive. But there's also a extent to goals. Bank failure resolution also needs to minimize moral hazard. The goal of avoiding moral hazard risk calls for rapid intervention resolution as well. However, it also calls for losses to be imposed on equity shareholders, insiders and junior creditors of banks. This is unavoidable. This is the problem why we have to have bail-in in the future. In addition, it calls for the minimization of any bail-out expectations, including the threat of job loss for the takers of risky decisions. That's why bankers that are reckless in their behavior need to be fired when the bank goes over, when it goes down. So, all of this sets essentially what in my opinion are the guiding principles for an orderly and swift resolution. That is to say, I would hope for the BRD as it's been proposed. First, to set a special resolution for banks, make sure it's in place when the time comes. Second, to ensure that shareholders take the first losses. Third, to ensure that secure creditors take the receipt of losses. Then, to ensure that senior management can be replaced when and if needed. Fourth, to ensure that there's a fifth, sorry, to ensure that the resolution plan is in fact prepared in advance. And finally, public support should only be provided if private sector solutions are exhausted and stability concerns are overriding. But all of this suggests that once we're done, once the BRD is in place, we can relax. I don't think so. I don't think that's the case. We need to remain alert and we need to review continuously. There are far too many problems still lurking around the corner. Let me just list them in the interest of having a more in-depth discussion later. I'm happy to take questions of any of these. First of all, bail-in induced runs. We know that bail-in in certain situations if the resolution authority doesn't take enough care to potentially lead to a position where potential creditors facing the prospect of bail-in may run. We're not quite sure how that's going to play out, but we know there's a time inconsistency problem lurking behind. Secondly, cross-border cooperation. No matter how well-designed single-resolution mechanism is, there will still be a need to cooperate with British government, British resolution authorities, US resolution authorities, Asian, you know, any other authority that has supervisory power, resolution powers over large interconnected banks that operate cross-border and there's plenty of them. Barclays, for example, has more than half of their assets outside its home country. Finally, there's a problem of concentration. One of the key ways to resolve a bank when they're going to get stuff is to sell it over to someone else. But then these banks become bigger and bigger and this may reinforce moral hazard problems, may actually reinforce too big to fail, which itself will feed the too big to save problem. And not to speak of competition problems that would arise as a result. And then finally, time inconsistency and conflicting goals. We have three actors that have a role to play in Portable to Play when it comes to resolution. We have the supervisory authorities who at some point in time may be a little bit reluctant to declare a bank if you go into resolution fail or likely to fail because this may put them in good light in terms of the supervisory activity. But you have the resolution authority itself who may be concerned with effectively what is the best instrument and to do it quickly, maybe in ways that may exacerbate some problems. For example, the issue of bailing runs. And we also have the treasury who not only doesn't want to pay up but at the same time may be concerned with credit crunches. So there's all these conflicting objectives and behind there is the risk of regulatory capture. And just to conclude let me point out that the final and most controversial element of an effective resolution framework is appropriate burden sharing agreements. Well, private sector solutions are preferable and should always be explored to the full first. There may be cases where public support is needed to keep systemic banks or part of systemic banks alive to prevent a meltdown to the financial system. I think inevitably we have to admit this. Game theory in fact, an economist like to tell you this, suggests that national authorities will follow their own national interest when they have to refinance a failing cross-border bank. As mentioned earlier, good examples of this coordination failure in Europe are the handling of 40s in the Icelandic banks. But Exante burden sharing arrangements can overcome this coordination failure by agreeing Exante on a burden sharing key. Authorities are only faced with the decision to intervene or not to intervene. In that way, authorities can reach the first best solution. If the social benefits, i.e. systemic stability, exceed the costs, the intervention will go ahead according to plan. There is no fight about the division of the burden across the countries if it's all prearranged. So as with the exercise of an option however let me remind you that it will still be necessary for the regulator to weigh the risk of an early intervention and the nature of that intervention, including possible bailout or partial bailout, against the cost of forbearance. Waiting has the benefit of providing a chance for recovery, possibly a better bargaining environment and above all better information. Of course with hand side it will be easier to accuse the regulator of doing too little, too late. But the Exante trade-off is there and injecting taxpayer money into shareholder hands has a cost to society. This is a cost that the BRD and the SRM are designed to minimize. Thank you very much for your attention.