next step in the advancement of the economic and monetary union. the three pillars of the banking union • the banking union is built on three pillars : the single supervisory mechanism ( ssm ), the single resolution mechanism ( srm ) and a harmonised system of deposit guarantee schemes. • the single supervisory mechanism gives the european central bank ( ecb ) responsibility for supervision over banks in the euro area and the eu countries which participate in the banking union. this will ensure the application of a common supervisory model for all banks. • as of november 2014, the ecb assumed the direct supervision of 120 significant banking groups which represent 82 % ( based on the assets ) of the euro area banking sector. for all other 3, 500 banks the ecb will also set and monitor the supervisory standards and work closely with the national competent authorities on the supervision of these banks, ensuring a level playing field in the supervisory requirements to be met by banks. bis central bankers ’ speeches • the ecb ensures a truly european supervision mechanism that is not prone to the protection of national interests, will weaken the link between banks and national public finances and will take into account all risks to financial stability. • a necessary complement to the single supervision mechanism is the resolution framework to deal with non - viable banks. • the single resolution mechanism constitutes the second pillar of the banking union. orderly and prompt resolution of non - viable banks is essential in order to avoid costly rescues by sovereigns that may impact on their fiscal position. • the srm regulation creates a single resolution board, responsible for the resolution of banks in the euro area and in the participating member states in order to ensure swift and effective resolution decisions, especially in the case of large and complex cross - border banking groups. • from the 1st of january 2016 onwards, any resolution of a euro area bank will be decided within the context of the srm. • resolution also needs a credible back - stop. this back - stop is provided by the single resolution fund. the fund will be financed via ex - ante and ex - post contributions by the banking sector, which will be gradually mutualised. the srm will thereby reduce the link between domestic banks and their sovereigns and it will contribute to a level playing field for banks. the use of the srf funds is conditional on the application of the bail - in tool, thus ensuring that shareholders and creditors are the first to carry the costs of a failing bank. • a prerequisite of the single resolution mechanism is the

today. although i focus on the u. s. experience, my remarks apply to most countries at that time. in the 1970s, the fed did not have an inflation objective. it believed that there was a permanent trade - off between unemployment and inflation. as difficult as it may be to imagine today, in the early 1970s, fed chairman arthur burns argued that monetary and fiscal policies could not control inflation. to bring down inflation, burns advocated compulsory wage and price controls. those controls were, in fact, adopted but they did not work. it should not be surprising that, in those circumstances, central banks had not established their credibility. consequently, long - term interest rates, which incorporate inflation expectations, jumped up quickly to double - digit figures. they remained very high into the mid - 1980s. today, the situation is different. during the last several decades, central banks have established credibility, using price stability - oriented monetary policy to do so. the ecb, like most other central banks, has a medium - term inflation objective at 2 per cent. before the outbreak of the pandemic, the ecb mostly delivered on its objective, a few years slightly above its objective, but most of the time below that objective. the credibility central bankers have earned provides some space for monetary policy to operate to reduce the unemployment and output costs of the inflationary shocks. in other words, we have a single needle on our compass - inflation in the medium term. so long as the needle remains centred on this objective, we have used the flexibility provided by our credibility to minimise the damage to growth and employment caused by these shocks. question 1 : as you mentioned, inflation is now at an exceptionally high level. some critics say the ecb was slow to react to rising inflation. what is your answer to those critics? 3 / 7 bis - central bankers'speeches the ecb has embarked on policy normalisation, in two distinct phases. the first major phase was initiated in december last year and has entailed the ending of net purchases via our two landmark programmes, the app and the pepp, the phasingout of both our collateral easing measures and the very favourable terms of our targeted refinancing operations. in july, we entered a new phase in our policy normalisation that has entailed the adjustment of our rates towards levels that will ensure the timely decline of inflation to our 2 per cent medium - term target. as i highlighted before, there were several inter - related