there is insufficient collateral left for the institution to fund itself. and here we encounter the fourth and final area of concern : the authorities. authorities should therefore work in parallel in two directions, to avoid institutions being unable to be resolved because of a lack of funding. first, to avoid ending up in such a situation where all collateral is gone, it is important that the bank is placed in resolution at a sufficiently early stage. in line with the fsb key attributes of effective resolution regimes, liquidity indicators should be an important element in when authorities determine that an institution is failing or likely to fail. second, private and public funding mechanisms should be put in place to close any potential liquidity gaps. in line with the fsb guiding principles, private sources of funding should be relied upon as a first - choice source of funding, to the degree that such funding is available. in addition, an effective public sector backstop funding mechanism should be available as last resort. in several jurisdictions such mechanisms have been put in place in recent years : in countries like the united states and the united kingdom, through a combination of a resolution fund and a central bank resolution liquidity facility. at the level of the banking union, the public backstop funding mechanism is still very much a work in progress. i understand the srb has been exploring how the single resolution fund can best be used for funding in resolution. there are quite a few challenges that need to be overcome, like the form in which liquidity will be provided and obtaining a rating for the fund. i am sure the srb will rise to the occasion on these topics. what has been achieved, is that the esm will become the common backstop to the srb ’ s single resolution fund. this backstop can be used in case the single resolution fund has been depleted. it is therefore also available to provide liquidity support to resolved banks. yet, we all know this may not be sufficient to cover the liquidity needs of a gsib this leaves the question of the role of the eurosystem, with regards to funding for banks in resolution. at the moment, the technical work within the euro working group focuses on ways to access ordinary central bank liquidity facilities. the recent letter from eurogroup president centeno mentions further work on proposals on srb guarantees to the eurosystem, and on the capacity of the srb to provide collateral to banks in resolution. you can imagine that, with my central bank hat on, i can only

is beneficial from a monetary policy perspective, for there are several reasons why better developed and integrated capital markets can make the lives of european central bankers much simpler. 5. as you know, the governing council of the european central bank aims to maintain price stability in the euro area as a whole. to achieve this, the ecb conducts monetary policy. based on the outlook for inflation, we set our policy rates to steer overall financing conditions for households and firms in the euro area. a homogeneous transmission of our monetary policy decisions throughout the financial system enhances the appropriateness of our policy decisions. for the euro area as a whole, and for the participating member states. that is why monetary policy benefits from a level - playing field in financial markets across countries. 6. note that i do not intend to suggest that all economic agents should be able to lend against the exact same conditions. actual financing conditions for individual households and firms are to be determined by the market and not by the ecb. and these should appropriately reflect differences in earnings capacity and risk. 7. this is exactly what went wrong in the run - up to the crisis. lending rates converged throughout the euro area, and no longer reflected actual underlying risks. several potential bis central bankers ’ speeches explanations have been put forward for this. one reason often mentioned is the search - foryield as a consequence of the low interest - rate environment. or the fact that the no - bail out clause in the eu treaty was perceived as not credible. yet another explanation is that gaps in banking regulation were the primary cause of the mispricing of risks in the run - up to the crisis. in my view, all three explanations have been relevant. in fact, these factors are likely to have reinforced each other. 8. in a similar way, i believe that a lack of harmonization in regulation and common standards in euro area capital markets can also be viewed as an aggravating factor. for heterogeneity and inconsistencies in regulation can obscure how losses will be distributed once financial risks materialize. and this can exacerbate the mispricing of risk in financial markets. 9. i think this is a key issue that the commission agenda on capital markets union should address. in my view, one of the obstacles to be tackled is the lack of harmonization in insolvency laws across countries. unfortunately, in the commission ’ s early proposals initiatives to that effect do not feature very prominently. yet, i