Mario Draghi: Stronger together in Europe - the contribution of banking
supervision
Speech by Mr Mario Draghi, President of the European Central Bank, marking the
inauguration of the ECB's new supervisory responsibilities, Frankfurt am Main, 20 November
2014.
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Summary
Speaking at the Inauguration of the European Central Bank's new supervisory
responsibilities, Mario Draghi, the President of the European Central Bank, reflected on the
creation of the Single Supervisory Mechanism, reminding the context that lead the Council
and the Parliament to entrust the ECB with supervisory tasks.
According to Mr Draghi, the setting-up of European banking supervision has been the largest
step towards deeper integration since the creation of our Economic and Monetary Union.
The President restated that the ECB was and remains determined to protect the euro, while
reminding that more works needs to be done to improve "our" union, not only in the banking
sector but also in relation to capital markets and in the economic and fiscal realms. "Our
responsibility towards the people of this continent is indeed to put in place a sustainable
economic model that helps to increase employment and boost growth", he said.
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Ladies and Gentlemen,
I am very pleased to welcome you to the inauguration of the Single Supervisory Mechanism.
Today, I would like to reflect on what made this joint achievement possible and how it can
inspire us as we strive to make Europeans stronger together.
The crisis has caused many of our fellow citizens to question whether the European project
can keep its promise of shared economic prosperity. And the response to the crisis indeed
took time to take shape, as we did not initially have all the instruments to address its causes
and consequences. This has forced us to fundamentally reflect on what is necessary to
achieve a genuine economic and monetary union.
In particular, we needed to decisively and credibly address the weaknesses in the banking
sector. This was not only key to restoring investors' confidence. It was also key to protecting
citizens and businesses as taxpayers, depositors and borrowers.
We agreed that this challenge would be best addressed together through the establishment
of a banking union. It entailed a Single Supervisory Mechanism, a Single Resolution
Mechanism and a common rulebook, including for harmonised deposit guarantee schemes,
which may evolve into a common European deposit guarantee.
This was a fundamentally political decision, taken by the European legislators - the Council
and the European Parliament. And once the decision to establish the SSM had been made,
the ECB assumed a key role in bringing about this change in only one year.
The setting-up of European banking supervision has been the largest step towards deeper
integration since the creation of our Economic and Monetary Union. One that provides a
determined response to the crisis, strengthens the euro and will protect us in the future. One
that shows that, if we decide to act together, we can be stronger together in Europe.
The creation of the Single Supervisory Mechanism, a collective achievement
Fragilities in the banking sector were a major risk that had to be directly confronted. In a
context where the integrity of the euro area had been threatened, the Council and the
Parliament entrusted the ECB with supervisory tasks.
We were and remain determined to protect the euro. We are thus proud to take on this new
role and committed to fulfilling the high expectations.
It was nevertheless a major organisational challenge to get the SSM up and running in only
one year, whilst also conducting the comprehensive assessment.
Together, we have successfully accomplished this task.
Let me pay tribute to all the ECB staff, old and new, who made banking supervision a
European reality. Thanks to their hard work, the ECB has shown an impressive ability to
adapt. And while we ensure a strict separation between monetary policy and banking
supervision, both these areas of activity will be able to rely on the accumulated expertise in
shared services areas and of course be inspired by the European spirit that guides our work.
The SSM is also benefiting from the experience and resources of the national authorities. We
have combined all these strengths. They make up our DNA.
We are however creating something new.
The SSM creates the institutional conditions for overcoming fragmentation in supervisory
practices and allows us to define a single model. We are establishing common
methodologies, a joint culture, a shared reputation. They will ensure that we have the right
instruments and incentives to effectively carry out our supervisory tasks. They have already
been successfully tested - as the comprehensive assessment shows.
Let us at the same time recognise that this is just the beginning.
The ECB will have to perform consistently well day after day, years after year, in the face of
very challenging supervisory tasks.
Moreover, we need to further think about how we can improve our union, not only in the
banking sector but also in relation to capital markets and in the economic and fiscal realms.
Our responsibility towards the people of this continent is indeed to put in place a sustainable
economic model that helps to increase employment and boost growth. I believe the
experience of setting up the SSM and the banking union can inspire us in this respect. Let
me explain what I mean.
Banking supervision: gaining from a European approach
The SSM, and more broadly banking union, show that Europe can make a difference. We
can draw lessons from this achievement, from both a policy and institutional perspective.
From a policy standpoint, adopting a European approach to tackle risks in the banking sector
clearly helps protecting individuals and businesses.
 First, it protects them as taxpayers. During the crisis, the cost of restructuring failing
banks was borne disproportionately by taxpayers. This was not only unfair, as it
entailed in some instances large social and economic costs. It also created the
wrong incentives for banks' shareholders and creditors. Fairer and more effective
burden-sharing rules have now been put in place and resolution costs will be borne
primarily by the banks themselves.
 Second, it protects them as depositors. Deposits under €100,000 will not be touched
and those above that amount will benefit from preferential treatment compared to
other unsecured creditors.
 Third, the banking union, and the SSM in particular, aims to protect borrowers by
restoring trust in the soundness of the banking sector thereby increasing its capacity
to lend to the real economy.
Fairer and more sustainable conditions have thus been created. And this achievement can
serve as inspiration in other areas of economic policy.
There are also lessons to be learned from the institutional perspective.
The Single Supervisory Mechanism and the Single Resolution Mechanism are strong
enforcement mechanisms. Both institutions follow a governance model which seems to work
well, be it at euro area level or EU-wide. This approach involves three components: a political
agreement at European level based on well-defined objectives, a European authority with
strong enforcement powers and an integrated system reflecting Europe's diversity.
This is the approach of competition policy, monetary policy and single market policies. It is
now the model of banking supervision and is set to be the model for banking resolution. In
the future, we can learn from this experience as we progress towards economic union and
capital markets integration.
This governance model is in fact a valuable, practical example of the EU's motto: "United in
diversity". Internally, it makes us stronger together: for instance, the SSM reinforces the
banking system of the euro area as a whole, thus reducing systemic risk to the benefits of all.
Externally, it provides a basis for increasing our global influence in setting high regulatory
standards.
Finally, European action needs to be fully legitimised. As part of our Inter-Institutional
Agreement with the European Parliament and of our Memorandum of Understanding with the
Council, we are committed to very high standards of accountability, which compare
favourably at international level. But let us not forget that our legitimacy crucially depends on
the ability to fulfil the mandate that was democratically assigned to us. This requires our
constant attention and continuous effort.
Conclusion
Let me conclude. While we celebrate today an important achievement, we need to be
humble for the future and to ensure that we deliver on our tasks, old and new. The ECB has
at the core of its mandate the protection of price stability. We now need to protect the
economy in one additional way, by preventing excessive risks in the banking sector.
Protecting our fellow citizens as well as businesses from the dire effects of the crisis was the
driving force behind the 'Four Presidents' report', which established a roadmap towards a
genuine Economic and Monetary Union.
Dear Herman,
You were the chef d'orchestre of our quartet.
I believe it is no exaggeration to say that you have left your mark on history by masterfully
conducting the discussions between European leaders which led to the creation of the
banking union. This has been an inspiring first movement.
While we enjoy today's short entr'acte, we should also look ahead and prepare for the
movements still to come, as we progress together towards a genuine Economic and
Monetary Union.