. the delors report of 1989 already highlighted that in a single market for financial services within a monetary union, a single monetary policy could make a positive contribution to financial market integration. 2 i consider the banking union to be an important and necessary extension of monetary union. it closes a vulnerable gap in the single currency by harmonising rules for the supervision and resolution of credit institutions at the european level and establishing european supervisory authorities. this is important, regardless of whether you wish to continue monetary union in the spirit of a “ maastricht 2. 0 ” with decentralised responsibility for fiscal policy or to develop it into a fiscal union with mutualisation of liability and control. in the eurosystem, the ecb provides banks with liquidity in its capacity as lender of last resort. supervision organised purely along national lines is no longer fitting with the times. liquidity assistance from national central banks can have an impact on the single monetary policy. the restructuring or resolution of financial institutions can overstretch the individual member states ’ financial means. the banking union does not mean an extension of joint fiscal liability, however – its aim is anything but that. rather, the banking union can play a role in establishing the liability principle at the european level in a better way than before. in future, private investors will have to shoulder losses. by contrast, public funding mechanisms may only be used in very tightly restricted exceptional cases, for example if the stability of the entire financial system is at risk. and if public funds have to be used, these should be national funds in the first instance. in this sense, the comprehensive assessment serves to ensure that apparent legacy risks do not fall within the scope of the new supervision and resolution regime. they should instead remain where they arose – at the national level and under national control. so is the banking union the solution to our problems? it could be an important part of the solution. but further steps are needed to make it a success. first, we must – as previously addressed – ensure that private investors are adequately liable for losses incurred. second, the banking union on its own is not the key to better separating the risks of banks and governments. we must also make further progress in regulation and put an end to the preferential treatment afforded to government debt instruments. third, earlier reforms of the financial markets in europe have focused on the banks. it should not be overlooked here that the integration of the markets for capital can make an important contribution to sharing opportunities and risks in

are able to exit the market? see s agarwal, d lucca, a seru and f trebbi ( 2012 ), inconsistent regulators : evidence from banking, nber working paper no 17736, cambridge. bis central bankers ’ speeches the second pillar of the banking union, the single resolution mechanism, was designed to provide the answer to these questions. national solutions can normally be found for smaller ailing banks. in germany, for example, there were a good 4, 700 banks in the market at the start of the 1990s – today there are around 1, 800. the bulk of these changes came about through mergers of smaller institutions with economically stronger ones. there are hardly any tried and tested mechanisms for restructuring and resolving major banks, however. risks to financial stability can be posed if key business areas fail. furthermore, coordination across national borders is required. these problems are not easy to resolve. all too often, stressed banks were given too much time to resolve the economic problems they faced. in earlier crises, finance ministers and supervisors often acted too late and too indecisively. some shied away from the consequences of banking crises for government budgets, others from the loss of reputation for supervisors. empirical studies indicate that banking crises come at a high real economic and fiscal cost. 7 a wait - and - see strategy is the most expensive approach of all, however. that ’ s why the bank recovery and resolution directive ( brrd ) is an important step towards better handling troubled banks. it harmonises the legal framework for bank resolutions in europe. the brrd defines the liability cascade : shareholders are liable first, followed by the creditors of subordinated and unsecured bonds. depositors are protected up to euro100, 000 by the statutory deposit guarantee scheme. if the capital freed up in this way is insufficient, funds from the single european resolution fund can be used, under certain conditions. this fund is intended to hold euro55 billion. it is to be built up over time and funded by bank levies. the exact structure of this bank levy is currently being negotiated. regardless of the details, it is particularly important in my view that the bank levy is as clear and simple to calculate as possible and does not allow for any exceptions. to ensure that liability and control are kept in balance, banks that are subject to european supervision also need to be resolved at the european level. but this also means that losses originating from the time before the launch of the banking union need to