pentti hakkarainen : banking union – the “ game - changer ” in the european financial markets speech mr pentti hakkarainen, deputy governor of the bank of finland, to ambassadors and representatives of the eu - countries in helsinki, helsinki, 11 december 2014. * * * accompanying slides can be found on the bank of finland ’ s website. your excellences, it is a great pleasure for me to tell you today about the banking union and give a short overview on where we are today. the banking union creates a comprehensive legal and institutional framework providing authorities powers and tools to deal with ailing banks. major steps have been taken already, but there is still some work ahead. the key lesson we have learnt is that economic dislocations without proper arrangements to tackle troubled banks have devastating effects on the real economy, taxpayers and the whole society. and regaining growth proves to be painfully slow and long - lasting. the banking union is the game - changer and it will bring a new culture into the financial markets. the banking union the banking union is comprised of three different, although integrated, parts. the single rulebook provides a foundation for the banking union. it is based on the idea of harmonised regulatory requirements, such as capital adequacy rules for banks. these are achieved through european legislation and lower - level technical standards. the second main pillar of the banking union is the single supervisory mechanism which started its practical operations just over a month ago in the beginning of november. the third important pillar is the single resolution mechanism. the srm will gradually start its practical operation in the beginning of 2015. the banking union will help us prevent banking problems. i would argue that there will be fundamental cultural change not only in the supervisory crisis management and regulatory framework for banks but also in the banking industry. in the future we avoid use of taxpayers ’ money as a rule and bail - out would be only as a rare exception. this in turn means also correct incentives in banking and hence a more stable financial system. the single supervisory mechanism after the successful comprehensive assessment process, the ssm is up and running. the ssm was established to ensure that strong supervisory standards are applied in a consistent manner across the euro area. and the fundamental goal is to strengthen the confidence and resilience in the banking sector. to achieve these goals, the ssm, with the ecb at its centre, has been entrusted with an extensive set of micro - and macro - prude

framework to be robust to the complexity and uncertainty of this landscape. specifically, we have made our future decisions contingent on three criteria : the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. this framework has helped us chart a tightening path that began steeply and then slowed to a more normal pace. now, based on our current assessment, we consider that the key ecb interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our medium - term target. our future decisions will continue to be based on these three criteria and they will ensure that the interest rates will be set at sufficiently restrictive levels for as long as necessary. i wish you a fascinating and productive conference. 3 / 3 bis - central bankers'speeches