the ball is in the court of the private sector and the euro area governments. so let me turn to how we can rethink the financial sector architecture in europe for longlasting stability and integration of the banking sector. missing elements in architecture : the banking union the path towards a more sustainable architecture of emu is still under - way. but much has been achieved. indeed, the crisis revealed the fragilities and flaws in the foundations of the european construction, especially in the financial sector. we understood that national laws and regulatory frameworks proved inadequate. the lack of harmonised policies and centralised provisions at european level caused a situation in which banks operated not on a level playing field. more importantly, there was no institutional framework to deal with systemic risks in the banking sector, be it domestic and cross - border. in fact, some of the biggest players virtually eluded any form of control or limits to their activity. the establishment of the banking union is therefore an important milestone towards genuine stability and integration of financial markets in the emu. just a few weeks ago the regulation establishing the single supervisory mechanism ( ssm ) entered into force and the construction of the single resolution mechanism is on its way. the establishment of the ssm is a fundamental step within the new emu architecture. not only because it will be vital for banking stability in the euro area, but because it will be housed in the ecb. this implies both major institutional and logistical consequences for our institution. just as for single monetary policy, common supervision must be built on solid institutional and legal footing. again, a stringently defined institutional framework will set out a clear mandate, but also provisions that specify the boundaries of the tasks and responsibilities needed for banks to operate in a system of effective supervision providing a level playing field across the euro area. article 127 ( 6 ) tfeu provides that the council may confer specific tasks upon the ecb concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the explicit exception of insurance undertakings. 4 let me mention the foundation stones on which we have built the ssm and which will serve to ensure effective supervision : first, the ecb should remain independent in carrying out all its tasks. this includes the supervisory tasks conferred to the ecb. independence is a key element to avoid leniency to any type of political pressures. such pressures would undermine the effectiveness of the supervisory actions, which should only be guided by economic and technical considerations. second

##acent national policies. • third, the prevailing consensus assumed that financial crises would not occur in advanced economies but only in faraway places. “ when exercising the powers and carrying out the tasks and duties conferred upon them by the treaties and the statute of the escb and of the ecb, neither the european central bank, nor a national central bank, nor any member of their decision - making bodies shall seek or take instructions from union institutions, bodies, offices or agencies, from any government of a member state or from any other body. the union institutions, bodies, offices or agencies and the governments of the member states undertake to respect this principle and not to seek to influence the members of the decision - making bodies of the european central bank or of the national central banks in the performance of their tasks. ” ( art. 130 tfeu ) “ the primary objective of the european system of central banks ( hereinafter referred to as “ the escb ” ) shall be to maintain price stability. ” ( art. 127 ( 1 ) tfeu ) “ overdraft facilities or any other type of credit facility with the european central bank or with the central banks of the member states ( hereinafter referred to as “ national central banks ” ) in favour of union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of member states shall be prohibited, as shall the purchase directly from them by the european central bank or national central banks of debt instruments. ” ( art. 123 : tfeu ) bis central bankers ’ speeches the first decade of the emu was promising. the favourable economic environment covered any weaknesses. now we are wiser. the design of the institutional framework proved porous in particular in four places : • first, the binding effect of the stability and growth pact was insufficient to establish appropriate incentives for prudent fiscal policies and to contain national developments which can cause damage to the union as a whole. • second, the framework lacked a mechanism which obliges national economic policy to a long - term growth strategy. • third, our framework turned out to be incapable of recognising risks in the financial sector at an early stage and to prevent imbalances that in the end destabilised entire economies. • finally, the disciplining function of the financial markets failed : even countries with drastic losses in competitiveness and exuberant debt