- reaching reform since the creation of the euro. 3. main features of the ssm regulation the single supervisory mechanism is to become operational in 2014. let me briefly highlight its main features. ssm as one system the ssm will operate as a system, catering for all expertise of national supervisors and at the same time possessing a strong decision - making centre. this will ensure close proximity with the supervised entities and cross - border consistency. appropriate decentralisation procedures will be defined while preserving the unity of the supervisory system and avoiding duplication. as regards the scope of the banks to fall under the ssm, the proposal is very clear. all banks established in the euro area will fall under the remit of the ssm. this approximates to around 6000 banks. the fact that all banks in participating member states fall under the scope of the proposal, does not imply that the ecb will conduct direct supervision of all banks. although the ecb will be ultimately responsible in the conduct of its supervisory function, the ecb will be assisted by national supervisory authorities – the system will be very much decentralised. national supervisors have the knowledge of local and regional markets and have a long - established expertise in supervision. nevertheless, what ensures that the ssm is really one system are the regulation dispositions that state that the ecb will issue guidelines and will define the framework for conducting supervision by all systems'd. schoenmaker, ( 2011 ), “ the financial trilemma ”, economic letters, no. 111. bis central bankers ’ speeches components and, most important, that the ecb will have the power to centralise the supervision of any bank or group of banks when it recognises the need to do so. the proposed regulation stipulates the thresholds that will define the significant banks that will fall under more direct ecb supervision. in addition, the ecb may also on its own initiative consider an institution to be of significant relevance and thus decide to exercise direct supervision. based on a preliminary assessment, the ecb will conduct direct supervision of approximately 150 banks, representing around 80 % of the banking sector in europe. extensive powers of the ssm a second important feature of the ssm regards its extensive powers in the conduct of its supervisory function. the ssm, with the ecb at its centre, is entrusted with an extensive set of micro - and macro prudential powers, covering all key tasks relating to the prudential supervision of credit institutions. the

in the overall banking union project is an important issue in connection with european direct recapitalisation of banks. it has to be ensured that in the setting up of a european resolution mechanism, the losses of legacy assets, in accordance with good resolution principles, will be borne first by the banks ’ shareholders and / or partly by the countries where they are domiciled, so that the use of any european funds do not raise issues of moral hazard and / or unjustified excessive mutualisation of losses coming from the past. as it happens when a private investor takes a stake in the capital of a troubled bank, appropriate due diligence is conducted and will impact the determination of the price of entry thus diluting previous shareholders. the ssm in conducting the initial assessment of the banks ’ situation will benefit from the fact that the ecb is well prepared to conduct these reviews and related assessments on individual banks, in cooperation with other national and eu authorities and possibly third parties. this is particularly the case for forward - looking analysis of banks ’ solvency through the appropriate analytical tools. the ecb, similarly to other national central banks, has over the years strengthened its analytical capacity to support its financial stability function, notably the activity of carrying out systemic risk assessments in real time to support policy discussions. at a larger scale, fundamental work needs to be conducted by the ecb in cooperation with the eba is the development of a manual of supervisory practices, implementing the process and procedures for conducting supervision in the eu. this should ensure a harmonised approach to the way supervision is conducted and increase comparability across supervisory assessments – e. g. regarding provisioning and risk mitigation policies – under the new eu supervisory framework. the establishment of the ssm requires also the creation of some sort of european risk analysis system that will analyse and classify the risk profile of the supervised banks. work is thereby also needed on harmonising current national supervisory rating systems and on the use of early warning indicators of bank distress. the ecb is also investing on its analytical capabilities in this front. 5. conclusion let me conclude. the agreement reached on the ssm by the council shows the resolve to reinforce the emu by strengthening the institutional financial framework. the momentum needs to be kept. the ssm is a key component, but it is only one component of the banking union. in particular, a european framework for resolution of banks – with a single resolution mechanism centred on a single resolution authority needs to follow.