outs by national governments, because it would become more common to resolve banks rather than save them. hence, the private sector would bear the cost rather than the taxpayer. any residual fiscal burden on sovereigns would be contained through a federal fiscal backstop. the shift of supervision from the domestic to the european level, at which supranational interests are pursued, should also eliminate national bias and the associated supervisory forbearance that the financial crisis has brought to the fore. with hindsight, in the past supervisors were often lenient towards “ national champions ”, constrained either by their mandates or by other national pressures, or perhaps both. supervisors should be free from local pressures and interests ; they should be able to independently assess the situation of individual banks in a systemic context. from a monetary policy perspective, the banking union can relieve monetary policy of some of the tasks undertaken during this crisis, notably that of repairing and bypassing a clogged bis central bankers ’ speeches transmission channel. early supervisory action limits the necessity to access central banks ’ financing, including non - standard measures. reasons and benefits for entrusting the ecb with the ssm all of these reasons were the driving forces behind the establishment of the ssm. let me now spend a moment on the reasons why the ecb is being entrusted with these centralised supervisory tasks. first of all, there are legal reasons. given the need to establish the ssm quickly, a treaty change, which would take several years, was not really an option. article 127 ( 6 ) of the treaty on the functioning of the european union provides that the council by unanimous vote may “ confer specific tasks upon the european central bank concerning policies relating to the prudential supervision of credit institutions. ” but a treaty change in the future should not be ruled out. second, the decision was guided by practical reasons. over the years, the ecb has built up a unique expertise in analysing financial institutions and markets. in other words, the ecb has the means and, in conjunction with the national authorities, in most cases coinciding with the national central banks, the technical capability to carry out this complex task. moreover, most of the national central banks already have prudential competence. key principles for the implementation of the ssm let me now describe how the ssm will function. one of the conditions for the success of the ssm is that it ensures a truly european perspective. it is a myth that politically protected

to create sufficient variation in the data. by standard econometric arguments, this will indeed allow better identification of the relevant, unknown deep parameters for future policy conduct. when presented with this line of arguments, however, a policymaker ’ s instinctive reaction is that they cannot possibly be right. • first and foremost, any experimenting with the economy would inevitably and fatally run the risk of destabilising expectations. indeed, the result that it is optimal to experiment with the economy was originally obtained within models in which the public played a purely passive role and the behaviour of the policymaker could not alter the public ’ s beliefs and expectations. • second, when this assumption has recently been relaxed in models in which the public is allowed to learn from the behaviour of the policymaker, 19 the result was overturned. optimal policy becomes distinctly conservative, in the sense that policymakers should be wary and respectful of the fundamental fragility of the macroeconomic equilibrium to any perturbation that policy experiments could introduce. in a nutshell, the initial, radical result in favour of monetary policy experimentation has been reversed. the fragility of the earlier result – and the transience of many such results, in the history of the theory of economic policy, which had appeared rock - solid at first sight – is a memento to policy practitioners. this, of course, poses an issue concerning the right balance between creativity and pragmatism in our policy - making institutions. isn ’ t it the case that an excessive intellectual conservatism might end up leaving our policy - making institutions “ behind the curve ”, clinging to dead theories, and unable to cope with the new challenges of an ever - changing world? to be sure, highly innovative ideas will not systematically be proven wrong : heliocentrism – a revolutionary paradigm when it was first expounded – finally and definitely displaced previously dominant geocentrism. we should be careful not to censor research just for the sake of intellectual conservatism. however, the intrinsically entrepreneurial nature of research, whatever the specific field of endeavour, means that the incidence of failure is bound to be high. failure in economic policy means potential for economic damage. a safe principle that has always worked in the past is that the introduction of new ideas and concepts into a central bank ’ s monetary policy framework should be evolutionary, as opposed to revolutionary. historically, a typical example of this has been the introduction, towards the end of 1999, of