of view, only if the ssm is complemented by a single resolution mechanism with a common backstop can the negative feedback loop between sovereigns and banks be broken, ensuring thereby that monetary policy transmission is fully restored. the srm would need several components to be effective. although the european commission is still defining the framework for the srm, let me nevertheless mention what, from my point of view, the main features of such a mechanism should be. first, the srm should be based on a strong and independent single resolution authority ( sra ) entrusted with the necessary powers. this would enable prompt and coordinated resolution action to be taken, specifically where cross - border banks are concerned. experience has repeatedly taught us that mere coordination between national authorities does not suffice in a cross - border bank resolution. successful resolution needs prompt and decisive action. although the organisational aspects of the sra still need to be decided, in order to achieve its objectives, the sra should be strong, independent and preferably a standalone authority and should collaborate closely with the ssm and the european commission. second, the sra should have adequate funds for resolution financing. indeed, for the resolution framework to work well and be credible, the sra must have access to a privatelyfunded european resolution fund. this fund should be pre - funded by levies from the private sector. this would ensure that the sra has access to the necessary financing to take resolution action and achieve least - cost solutions, as the federal deposit insurance corporation ( fdic ) does in the us. third, in order to ensure the credibility of the fund, it should have access to a temporary and fiscally neutral fiscal backstop at euro area level, to be used only as a last resort. indeed, in order for the srm to be effective, it will require a common resolution framework, containing comprehensive powers and tools. a harmonised toolbox of resolution powers is foreseen in the bank recovery and resolution directive, so it is crucial that this directive is adopted as an immediate priority and passed into law before the ssm is operational. a key resolution tool included in the directive, one that all authorities should have, is the possibility of bailing in by creditors. bailing - in is conducive to achieving a specific policy goal, namely that the burden of bank failures should be borne first and foremost by the private sector, rather than the taxpayer. in accordance with the financial stability board ’ s key attributes

of efficient resolution regimes for financial institutions, which have been incorporated in the brrd, resolution authorities should be able to write down or convert into equity liabilities in a manner that respects the hierarchy of claims in a liquidation. thus, when a bail - in by creditors takes place, legal certainty and predictability are essential. despite the limited spillovers, the idiosyncratic aspects of the bail - in by uninsured depositors in cyprus may remain a cause for concern among investors. creditors need to have a clear picture of what could happen in the event of a bank failure. this is key to avoiding excessive market volatility, bank runs, underprovision of capital and liquidity and / or overpricing of risk. this can be done by respecting the hierarchy of creditors in the event of insolvency, i. e. the order in which creditors will suffer losses in a bail - in. in order to enhance legal certainty and predictability, a clear pecking order has to be established regarding the financing of resolution measures. losses and resolution costs should first and foremost be borne by the shareholders and subsequently by the creditors of the failing institution. only at that point should the private sector be called in to finance resolution via the resolution fund. then and only as a last resort in case the accumulated funds in the resolution fund are insufficient, should there be a temporary public backstop providing credit to the resolution fund. but any such support should be fiscally neutral and bis central bankers ’ speeches recouped through ex - post levies on banks. this will ensure that financial sector repair is ultimately financed by the private sector itself. as regards the use of bail - in, let me stress that it should not create wrong incentives to the original entity by just continuing with “ business as usual ”. following the resolution process, only the critical functions and “ good parts ” of the original entity should survive, either because they are sold to a private sector purchaser – as commonly done by the fdic with the purchase & assumption approach used in the us – or because they are transferred to a bridge bank. it needs to be clear that the aim of resolution is not to preserve the failing institution as such, but to ensure the continuity of the functions that are critical for the financial system as a whole. another important way of providing legal certainty and predictability in resolution would be to introduce harmonised depositor preference for eligible deposits in the eu. currently, deposits have a preferential status in