fabio panetta : micro and macroprudential supervision in the euro area introductory remarks by mr fabio panetta, deputy governor of the bank of italy, at the conference “ micro and macroprudential supervision in the euro area ”, universita cattolica del sacro cuore, milan, 24 november 2015. * * * 1. i am pleased to welcome you all to today ’ s conference on micro - and macroprudential supervision in the euro area. first of all, let me voice my warm thanks to universita cattolica del sacro cuore for hosting the event. the conference focuses on two developments that are reshaping the european financial landscape : the creation of a single micro - prudential supervisor in the euro area, namely the single supervisory mechanism ( ssm ), within the broader context of a prospective banking union ; and the institution of a new macro - prudential framework. banking union represents a strong, vigorous response to the financial crisis. it rests on three pillars : the ssm itself, a single resolution mechanism and the harmonization of existing national deposit guarantee schemes. the idea underlying the design for banking union was to restore confidence in the european banking sector and to preserve and enhance financial integration. the ultimate objectives are safeguarding financial stability and ensuring efficient resource allocation within the euro area so as to support economic growth. in this context, the new macro - prudential framework definitely has a crucial role to play. the crisis has made it clear that a narrow focus on the soundness of individual banks can cause supervisors to overlook emerging threats to the stability of the entire financial system. macroprudential policies are designed to smooth the financial cycle in both expansionary and contractionary phases, working counter - cyclically to prevent the emergence of systemic risks. the toolkit available to banking supervisors is now larger but also more complex. the incentives of micro - and macro - prudential authorities tend to be aligned during economic expansions, but they may well diverge in downturns. when the economy is weak, it is more difficult to strike the right balance between micro - and macro - prudential policies. in my view, this is one of the main challenges that european policymakers face today. these are the reasons why banca d ’ italia, in its capacity as central bank in charge of banking supervision and financial stability, has organized this conference. we have invited two eminent, authoritative speakers to address us on

to overcoming the residual differences in the national implementation of the crr and crdiv rules. a public consultation on a draft text was launched just a few days ago. b. reinforcing cooperation and trust among the actors involved, from the ecb to the national competent authorities, is also crucial to our success. the banca d ’ italia, like the other ncas, is fully committed to the ssm. being part of “ something bigger ” is a challenge that we already faced with the launch of the monetary union, but the single supervisory mechanism is if anything an even greater challenge. if they are to contribute effectively to the monetary policy - making process, the members of the governing council need to understand the economic conditions that prevail on average in the eurozone. the members of the supervisory board have to make decisions bearing on over 120 large banks. considering that before the launch of the ssm each nca was responsible for only a handful of these banks, you realize just how great the additional analytical effort imposed on ncas under the new regime actually is. it will require substantial investment in human capital and deepgoing organizational changes. c. since its launch, the ssm has focused its supervisory action mostly on banks ’ capital position. concentrating on the construction of a strong capital base was fundamental to restoring confidence, which had been severely undermined by the financial crisis. now that the comprehensive assessment has demonstrated that the european banking system is solid, it is essential to avoid inducing pro - cyclical behaviour by banks, which would curtail lending to the economy. given that the ssm covers 123 major euro - area banks, its micro - prudential decisions may have macroeconomic consequences. this poses significant challenges for both micro - and macro - prudential authorities, at a time when little is still known – in theory as well as in practice – about the functioning of macroprudential policies. there is broad agreement that at present the main danger to financial stability stems from low real and nominal economic growth. the ecb ’ s programme of quantitative easing is directed to countering these risks. in most countries and on average in the eurozone, aggregate credit growth remains subdued. the credit - to - gdp gap – the main indicator laid down by the basel rules as a guideline for activation of the countercyclical capital buffer – is well below its historical average, but in recent months we have nevertheless witnessed several national macro - prudential decisions that resulted in a further