has become a key issue in the political negotiations on the banking union, namely the voting arrangements that will apply in the future. it is clear that the concerns of the uk and other “ out ” countries will need to be addressed. i think it would be unfortunate if the “ ins caucus ” sought to agree a common position on matters before engaging in debate around the eba table, so as to benefit from the views of other countries – and indeed i would not see the caucus leading to a block vote, as individual supervisors will still retain their responsibility for policy - making. but, as i said, the governance and voting arrangements for the eba clearly need to change. another key point of discussion relates to the scope of the ecb ’ s responsibilities in terms of the number of banks it is responsible for, and the speed with which its new mandate is implemented. it is clear that at the outset, a core group of systemically important banks will be subject to direct ecb supervision, albeit with some supervisory tasks delegated to national supervisory authorities. however, an open question subject of considerable debate relates to the timing of any subsequent assumption of responsibility for banks from programme countries and / or smaller banks. broadly casting the ecb ’ s mandate to cover all banks will avoid any disruptive capital flows between institutions subject to the two different regimes, and will also acknowledge the fact that severe problems have arisen from clusters of banks that sit below any obvious systemic threshold, but which nevertheless have imperilled the finances of governments. ireland and spain are, of course, examples of this. this approach was considered at the october eu summit. there is, however, a practical question regarding the speed with which the ecb can reasonably assume responsibility – and potential reputational risk – for such a large universe of credit institutions, even with a model involving significant delegation of tasks to national authorities. this points to the need to articulate some transitional arrangements. one approach might be a transitional phase of supplemental, but not direct ecb supervision, for the wider set of small banks. in this interim period, the ecb would issue its supervisory manual for use by national supervisory authorities for the smaller banks too. and, crucially, the ecb could be given the power to step in to inspect the financial soundness of any particular bank or subset of banks outside of the systemic group but which are flashing red on its radar. a small supervisory swat team could be sent in to kick the tires alongside the national supervisor that retains

role should enforcement play for prudential breaches? and how should senior management distil down the essence of the new supervisory model and approach, so that it can be communicated and understood easily by both firms and front - line staff? for example, in ireland, our new approach is one of “ assertive, risk based supervision underpinned by a credible threat of enforcement. ” that is designed to put a few concepts front and centre : that we operate a risk - based approach, differentiating based on impact and probability ; that there are consequences and accountability for non - compliance ; and that our supervisors are empowered to insist upon actions to mitigate risk where we are not satisfied by the explanation from a firm ’ s management. the best driver for creating this common supervisory culture and model is through the development – jointly by the supervisors that will use it – of a risk assessment framework. this will provide a common vocabulary across the banking union for the description and identification of risk, and set out clear rules of the game for supervisors regarding risk appetite and how problems are to be mitigated. it will therefore be an early, important task, for the ecb to develop a common risk assessment framework and a protocol for on and off - site inspections. stepping back from this long to - do list, it must be pretty obvious what the central challenge is for the new single supervisory mechanism. the key first call to be made is around the “ european capital question ” : is there enough capital in the european banks, in light of asset quality problems and the requirements of crd iv, and, if not, how quickly should you remedy the deficit? this raises the policymaking dilemma, which one might call micro – macro schizophrenia : the tension between the micro - prudential imperative to require more capital, more quickly, and macro - prudential concerns over the implications for pro - cyclicality and sovereign debt sustainability. it ’ s most obvious form may be found in peripheral eurozone countries but the condition is, of course, widely observed! the micro - prudential supervisor ’ s concern for more capital, faster, is rooted in scepticism over the asset quality of the european banks ’ balance sheets, due to practices of bis central bankers ’ speeches forbearance and failure to recognise embedded losses. it is compounded by the concern that the use of bank internal models, creating risk weights from historical losses, is masking or understating problems. and it is heightened by