consistent with it. confidence in the irreversibility of the euro is the key. in the short term, the effective use of esm resources will preserve the progress made and safeguard the rights and the efforts of bis central bankers ’ speeches those who have helped to develop the instruments of financial support. the omt announcement prevented a financial collapse with potentially ruinous consequences for the european economy : all the member countries benefited, not just those at the centre of the sovereign debt crisis. towards deeper european integration : the banking union to ensure stability over the longer run, the effort to reform the european governance has been stepped up. the subsequent stages are outlined in the report towards a genuine economic and monetary union ( presented in june 2012 and updated in december by the president of the european council, working closely with the presidents of the european commission, the eurogroup and the ecb ) and in the blueprint for a deep and genuine economic and monetary union published by the commission last november. both documents envisage a banking union, the introduction of autonomous fiscal capacity for the whole euro area, and a common budget ; they set the scene for the eventual political union. a keystone of institutional reform, banking union is crucial to break the perverse feedback loop between sovereigns and domestic banking systems. it has three key components : a single supervisor, a single bank resolution mechanism, and a single deposit insurance scheme. in the summer of 2012 the european leaders decided to give priority to the construction of the first component, the single supervisory mechanism. the ssm comprises the ecb and the national supervisory authorities. for the largest banks it will be based on strict integration of european and national structures. for the others, it will involve the direct responsibility of national authorities, under common guidelines ; the ecb will retain the right to take over direct supervision responsibilities where circumstances warrant. this far - reaching institutional innovation will require an organizational adaptation as far - reaching and at least as complex as that leading to the single monetary policy. the delicate launch phase will require substantial investment in human resources and technical infrastructure. the national supervisory authorities ’ workload will not diminish, as we strive to build a unitary new mechanism from frameworks that differ in many respects. the preparatory work is proceeding at the greatest speed compatible with the challenges of the task. building on the technical experience and reputation of national authorities, the ssm will have to ensure a supranational vision. supervisory practices within the euro area are quite heterogeneous.

means of loans to member states, but this would bear on the public debt of the countries concerned, bringing the bank - sovereign loop back into the picture. the comprehensive assessment of the main european banks … with a view to the launch of the ssm, the ecb and the national supervisory authorities are working to undertake a comprehensive assessment of the soundness of the significant euroarea banks, those that will fall under the direct supervision of the ssm. this assessment consists of thorough analysis of each bank ’ s risk profile, comprising an overall balance - sheet assessment ( bsa ), including an asset quality review, and a stress test. the exercise will also cover other relevant aspects of banks ’ business, including leverage, corporate governance and organization. the comprehensive assessment is designed to make sure that the area ’ s main banks are managed in a sound and prudent manner, helping to dispel market concerns over their soundness and risk profiles. significantly, from the outset the assessment will also foster confidence in the ssm itself, reinforcing mutual trust among participating countries. it will therefore be a fundamental step in normalizing wholesale markets and restoring the banking system to its principal, fundamental role of supporting economic activity and growth. in order to attain these objectives, the comprehensive assessment must be completely transparent, as regards not only results but also process and methodologies. the appropriate involvement of external reviewers may enhance the credibility of the exercise. attention must obviously be paid to potential conflicts of interest and problems of confidentiality. also, level - playing - field issues among participating banks must be avoided. the design of the balance - sheet assessment must recognize that national accounting and supervisory practices differ radically, especially in the definition and measurement of nonperforming loans ( npls ). the european banking authority ( eba ) is working to make definitions uniform across systems and has recently issued a consultation paper on the matter. this is a step in the right direction and should be finalized in time for its results to be used for the bsa. in any case, the bsa requires a de facto harmonization of npl definitions. national practices also differ substantially in the measurement of risk - weighted assets, the denominator of regulatory capital ratios. differences in the models used by banks to compute capital requirements – or in the approaches adopted by supervisors for validating them – may undermine the comparability of banks ’ capital, so the bsa will have to pay close attention to the way in which these models compute