##ducive to cross - border banking integration. before the crisis, supervisory coordination mainly took place through the lamfalussy process and committees, which were a major step forward and the best that could be achieved at the time. however, they were unable to fully iron out supervisory differences between eu jurisdictions. 15 this presented cross - border banks with substantial compliance costs and reduced the economic synergies of integration. for example, a commission survey in 2005 found that opaque supervisory approval procedures were a major deterrent to cross - border banking m & as in europe. the need to comply with different sets of rules and interact with several different authorities was also reported to be a barrier to cross - border activity. 16 the lesson from this period was that, while financial integration is ultimately a market - driven process, policy plays a key role in creating the conditions for it to progress. to quote the lamfalussy report, “ the eu has no ‘ divine right ’ to the benefits of an integrated market – it has to build one ”. 17 this ssm should help us in this building process. a single supervisor automatically removes some of the dividing lines between jurisdictions that create compliance costs. for example, there will no longer be a distinction between home and host supervisors for cross - border banks. instead, there will be a single supervisory model and eventually a single supervisory culture, rather than one per country. and crossborder groups will be able to report at the consolidated level. another benefit of the ssm – and perhaps a more important one – will be the lack of “ hidden barriers ” to cross - border activity linked to national preferences. with a european supervisor, borders will not matter. issues such as protecting national champions or supervisory ringfencing of liquidity will not be relevant. this means that banks will be in a better position to achieve the economies of scale that were promised by the single financial market – and that they also need to be competitive at the global level. it is of course for banks to decide whether such integration makes business sense. and some obstacles to cross - border integration that lie outside the remit of supervision – like company law and tax – still remain. however, the low profitability and excess capacity of the european banking sector suggests that efficiency gains could be achieved, and without exacerbating the “ too big to fail ” problem. improving risk - sharing even with a higher quality of financial integration, we know that shocks may still occur that cannot be contained within the private sector

sovereigns. i see that a banking union – the single supervisory mechanism ( ssm ) and the new european resolution framework – can make a significant contribution to these objectives. let me address each in turn. strengthening supervision to begin with, the ssm will enable supervisors to better identify emerging risks and to act counter - cyclically. this is thanks to its independence, its incentives and its instruments. the ssm has been designed with the necessary independence to lean against localised booms, being not only legally independent, but also independent of any single government or national financial system. and that independence is reflected throughout its organisational structure, for example by having mixed - nationality joint supervisory teams to supervise each significant bank. by virtue of its accountability, the ssm also has incentives that are clearly aligned with its european financial stability objective – it has to answer for the failure of any bank in the ssm schoenmaker, d., and w. wagner, 2011. “ the impact of cross - border banking on financial stability ”, tinbergen institute discussion paper ti 11 – 054 / dsf 18, duisenberg school of finance. gros, d., and c. alcidi, 2013. “ country adjustment to a ‘ sudden stop ’ : does the euro make a [UNK]? ”, economic papers 492, european commission. acharya, v., i. drechsler and p. schnabl, 2014. “ a pyrrhic victory? bank bailouts and sovereign credit risk ”, forthcoming journal of finance, or nikolov, k., and a. popov, 2014. ‘ ” the sovereign - bank nexus ”, ecb research bulletin, no 20, 2 – 4. bis central bankers ’ speeches area. compared with national supervisors, this gives it all the more reason to take account of excessive risk - taking and the cross - border externalities associated with it, and therefore to be proactive if local financial developments pose increasing systemic risk. finally, the ssm has not only micro - prudential powers but also new macro - prudential instruments to counter financial imbalances. for all the instruments in the eu legislation, it may apply stricter measures than national authorities if it observes emerging risks. this further strengthens the capacity at the european level to prevent financial instability. deepening integration the ssm can also help maximise the benefits of financial integration by providing a policy framework that is more con