financial integration made impressive progress in some markets, such as the bond markets, stock markets and money markets, but advanced very modestly in other areas, particularly in the case of the banking system. in retrospect, this may seem surprising, since four - fifths of private sector financing comes from the banks. the diversity of supervisory regulations and practices have made regulatory arbitrage possible and, in some cases, it has even led to the emergence of protectionist barriers across different domestic financial markets. a positive initial response to the financial crisis has been the active role played by the commission in seeking to ensure that public support to financial institutions becomes subject to conditions that limit the distortions to fair competition within the single market. another important milestone leading to a pan - european approach to supervision has been the creation of the european systemic risk board ( esrb ) to strengthen macroprudential supervision within the eu as a whole, which has filled one of the most acutely felt institutional gaps during the crisis. until recently, however, under the umbrella of the same legislation, we have witnessed regulatory competition to attract business, the oversight of cross - border groups has suffered from a lack of coordination and the compliance process has been fragmented along national borders. for this reason, it is difficult to overstate the importance of the commitment of eu institutions to a “ single rulebook ”. according to the logic of this approach, which pursues a growing harmonisation of supervisory standards, once the european banking authority ( eba ) or the other european supervisory authorities ( esma and eiopa ) have developed bis central bankers ’ speeches technical standards, once adopted by the commission, these standards will become legislation directly applicable to entities, with no need for national transposition. the potential of the “ single rulebook ” is enormous, although resistance to the concept of maximum harmonisation remains significant. in the area of crisis prevention, the difficult discussions surrounding the definition of capital, or the application of new liquidity requirements, among other basel iii proposals, will have to be followed closely. but perhaps the most demanding challenges are in the field of crisis management and the resolution of financial institutions that are both systemically important and which have significant cross - border operations. a legislative proposal from the commission is expected in the coming months, detailing common tools for monitoring and resolution as well as principles of cooperation and mediation applying to cross - border institutions, and the role of the eba in these processes. if we add to these important developments the possibility

with national authorities or at the request of the national supervisory authority. although aimed at revising the institutional arrangements of the euro area, the ssm is not a closed system. it is open to those national competent authorities of non - euro area member states that intend to participate by entering into a close cooperation with the ecb. once a member state enters into a close cooperation, national competent authorities will participate on equal footing as regards supervisory decisions, but will equally have to adhere to the guidelines and instructions issued by the ecb. enlarged participation in the ssm is a great opportunity for setting a level playing field in supervisory practices across the eu. at the same time, a series of conceptual questions need to be addressed. for one, it is hard to imagine that countries not participating in the european stability mechanism ( esm ) might act as a financial safety net for troubled but solvent banks, in the event that a privately financed resolution fund is not yet adequately funded. the next steps the establishment of the ssm represents a great opportunity for financial integration in europe. let me now turn to the next steps in the establishment of the ssm. first, the swift adoption of the ssm regulation is essential. definite plans are crucial in order to uphold the current momentum of the stabilisation of the euro. the general expectation is bis central bankers ’ speeches that the ssm will be established early this year, with an effective operational start 12 months later. second, the design of a supervisory model, including the allocation of tasks between centre and periphery is critical for the success of the ssm. in this regard, work is already under way by the ecb in cooperation with national competent authorities – subject to the final legal wording. third, the ssm will need to carry out a comprehensive review of the banks that fall under the direct supervision of the ecb. as set forth by the regulation, this exercise should include elements of an asset quality review as a basis for a thorough solvency analysis. this analysis should also be instrumental in identifying potential legacy problems. it is important that the financial clean - up of these legacy problems will be undertaken by the responsible member states and not by the esm and certainly not by the ecb. just like an insurance policy, the ssm can cover future risks. past omissions must be resolved by those who are accountable for them. this does not rule out interim solutions involving actions by the srm and ( privately financed ) resolution fund as well as by the