, it risks creating a vicious circle as a low price - to - book ratio means that it is expensive for banks to issue equity, which might impinge on their ability to raise capital through financial market channels in a cost - effective way. towards banking union this is where banking union comes in. the transposition to the european level of financial sector policies through building a strong banking union can play a pivotal role in rebuilding trust in the euro area banking sector. hoenig, thomas ( 2013 ) “ basel iii, a well - intended illusion ” remarks at the international association of deposit insurers, ( available in the fdic site ) bis central bankers ’ speeches banking union has for now two key components : the single supervisory mechanism ( ssm ) and the single resolution mechanism ( srm ). the creation of a european deposit guarantee scheme which the third component has been postponed for the medium term. the creation of the ssm, which we expect to be operational next year, should increase confidence in the euro area banking sector through two main channels. first, the ssm will provide reassurance to investors that supervision is consistent and effective across all participating countries. the ssm will operate as a single system, with a common supervisory manual applying to all participating banks. the ecb will directly supervise large, systemically relevant banks. while it would be inefficient for the ecb to supervise directly the thousands of remaining smaller banks, we will have the authority to take over supervision of any small bank or group of banks at any moment if deemed necessary. this means there will be no “ blind spots ” from which financial instability could emerge. second, the implementation of the ssm should reduce concerns about hidden losses on banks ’ balance sheets. in accordance with the ssm regulation, the ecb will conduct a “ comprehensive assessment, including a balance - sheet assessment ” of all banks supervised directly. this will apply to around 130 banking groups operating in the euro area, which account for around 85 % of euro area banking assets. the assessment will involve a balance sheet assessment including an asset quality review to be conducted by the ecb. this will then feed into the overall stress test to be conducted by eba, in cooperation with the ecb. the results of both exercises should be ready before we start actually supervising the banks next year. we want this assessment to be as rigorous as possible. consequently, we are prepared for the fact that it may reveal capital needs. if so, the

luis de guindos : redesigning europe's financial landscape speech by mr luis de guindos, vice - president of the european central bank, at the 6th frankfurt conference on financial market policy, frankfurt am main, 14 december 2018. * * * it is a pleasure to be here today. as you know, there is a long tradition of the ecb participating in safe conferences here in frankfurt. the second conference in 2014 was already dedicated to “ banking beyond banks ” acknowledging important changes underway in the european financial landscape. 1 indeed, this was a prescient choice of topic given the growth of the non - bank sector, which has continued unabated ever since. in a recent speech2, i also highlighted the rapid growth of asset management in the euro area and at the global level, and the impact this is having on the structure of the euro area financial sector. in fact, in 2008, total assets held by investment funds made up just 15 % of banking sector assets. in 2017, these assets had grown to 42 % of total banking sector assets, amounting to €12 trillion. as the non - bank sector continues to grow, so does the need to ensure that our supervisory and regulatory framework is fit for purpose. at the same time, banks still play an important role in many areas of europe ’ s financial system, notably in the financing of small and medium - sized enterprises ( smes ). so a healthy banking sector remains crucial to financing the economy, and despite the progress made in improving the resilience of european banks, some legacy issues from the crisis continue to weigh on the system. this has two implications for strengthening the financial pillar of economic and monetary union ( emu ), which will be the topic of my speech today. first, we need to shore up the banking sector further by thoroughly completing the reform agenda that emerged in response to the crisis. this means taking the remaining steps to complete the banking union – in terms of both risk reduction and risk - sharing. second, we need to facilitate the growing role capital markets and the non - bank sector can play in financing economic growth in a sustainable and resilient manner. this requires boosting the capital markets union ( cmu ) agenda while ensuring that authorities are equipped to face the new challenges of a changing financial landscape. this will require the fragmentation of european capital markets to be overcome and the macroprudential toolkit to be extended beyond the banking system to cover, in particular, the