to be channelled through the repo market. the united kingdom ’ s withdrawal from the eu means the supervisory framework for non - eu countries must be adapted. eu authorities must continue to be able to not only closely monitor uk ccps but ensure they comply with eu regulations. the importance of central clearing for central banks and their monetary policy mandate so precautions have to be taken to ensure that ccps do not become a weak point for monetary policy and the currencies issued by central banks. ccps can pose significant risks to the smooth operation of payment systems and to monetary policy transmission in times of market stress. let me give you some examples. market volatility or failures in ccps ’ risk management may affect liquidity within the financial system and that of ccp users, who are typically monetary policy counterparties and key 1 / 5 bis central bankers'speeches participants in payment systems. in extreme situations, liquidity shortfalls could foster contagion and lead to ccps and banks becoming distressed. this could mean the ecb needs to provide liquidity to systemic ccps or to their members to ensure that payment systems continue to function smoothly and that monetary policy can be transmitted effectively. it is clear that, in such cases, liability and control need to be well aligned : the ecb must be able to monitor and control the risks posed by ccps. ccps are also directly relevant for payment systems. cleared markets represent a significant share of financial markets as a whole, meaning that ccps are settling large payment volumes. in order to ensure that payment systems continue to function smoothly, the ecb must ensure that ccps have appropriate arrangements in place for liquidity management and settlement in euro. moreover, in the past ccps have increased margins and collateral haircuts beyond the levels required by prudential standards or their own risk models. but doing so they may cause liquidity strains and increase volatility in bond prices which, in turn, affects the transmission of monetary policy. to be clear, ccps should of course make sure they remain resilient to liquidity risks. but they should do so in a predictable manner and based on sound risk models that should not undercut monetary policy decisions. recent regulatory reforms these challenges were widely recognised when, in june of last year, the european commission proposed amending the emir framework for the supervision and regulation of ccps. the commission acknowledges the essential role played by central banks of issue ( or cbis ) in monitoring and addressing risks

direct supervision of only large, systemically important credit institutions, this does not mean that other banks will not be covered by the ecb ’ s supervisory framework. national supervisory authorities will have to comply with the regulations, guidelines and instructions of the ecb. moreover, the ecb will be able at any time to take over the direct supervision of smaller credit institutions. current plans envisage that common supervision will commence in the second half of next year. however, common banking supervision is only one element of a true banking union. in parallel, we also need a common resolution mechanism. the two elements are somewhat like siamese twins – one cannot survive without the other. their combination is the only way in which negative feedback loops between the banking sector and public budgets can be disrupted. bis central bankers ’ speeches the detailed design of the “ single resolution mechanism ” is still the subject of debate in brussels and the member states ’ capital cities. without prejudice to any decisions thereon, i would like to highlight two elements that i regard as being particularly important when designing the single resolution mechanism : on the one hand, the geographical and institutional scope of applicability of the single resolution mechanism should be the same as that of the single supervisory mechanism. a european resolution authority would ensure that decisions are taken in a timely and objective manner. a network of national authorities would fall short of what is necessary in this respect. cases where a bank finds itself in a precarious situation call for swift and efficient action. a european resolution authority would be able to avoid unnecessary delays and overcome coordination - related constraints. that would also keep the resolution costs low. on the other hand, the use of taxpayers ’ money should be limited to exceptional cases. the first step should be to use equity and bail - ins of shareholders and creditors to the greatest extent possible. the next step should then be to tap a european resolution fund financed through bank contributions. public funds such as those of the european stability mechanism ( esm ) should only be used temporarily in emergencies. such temporary assistance should be covered by subsequent levies on banks, so that it ultimately has no fiscal policy impact. the european commission will be submitting draft legislation on a common resolution mechanism at the end of the month. thereafter, the member states will need to ensure that we establish an effective resolution mechanism in addition to common supervision. that brings me back to where i started my speech today : it is the member states who are responsible for finding a lasting solution to the crisis.