take time, but we are moving from a system where we have multiple different supervisory cultures, with multiple different philosophies, to a system where we have only one. third, we expect supervision to be practiced with a european view as stated explicitly in the regulation, which will make liquidity between countries more fungible. we saw during the crisis that some supervisors required their banks to match national assets with national liabilities, which had the effect of fragmenting the single market. but in the ssm, national borders would simply be the wrong frame of reference. bis central bankers ’ speeches some of you may be wondering whether these changes will really support the single market, or simply create a “ market within a market ”, with countries that join the ssm divided from those that do not. i do not see this as a real risk. the introduction of the single currency did not impair the single market either. and that was a far more radical change than establishing a single supervisor. with respect to the ssm, the european banking authority ( eba ) has a crucial role to play in ensuring that there is a level playing field across the whole eu, and i am confident that the ssm will in fact reinforce its ability to do so. to begin with, the eba will remain responsible for developing regulatory policy and technical standards that will form the basis of a single rulebook for banks across europe. the creation of the ssm should help this process, as having a significant number of countries participating in the ssm will reduce the scope for coordination failures, thus making the eba ’ s coordination function easier. the eba is also currently developing a supervisory handbook which reflects best supervisory practices across the eu. the ecb is cooperating with the eba to ensure that its own supervisory manual and the eba handbook are consistent. here again, the existence of the ssm has the scope to help the eba ’ s work, as all ssm members will naturally converge in their supervisory practices. in short, when i talk about a genuinely european banking sector, i see this as consistent with the single market. and in any event, i hope that, over time, such a distinction will not be necessary as most eu countries will join banking union. channel 2 : increasing confidence in banks ’ balance sheets turning to the second channel where i see that banking union can help support the single market, investor confidence has been damaged by the perception that some supervisors have not been tough enough with their

on the other hand, this has more to do with the implementation of monetary policy than with its setting. as suggested by kay ( 2010 ). giovannini ( 2008 ). bis central bankers ’ speeches they might become relatively less important within the financial system, therefore reducing its impact. it would be an issue for empirical, policy - oriented research. so far, i have dealt mostly with solvency issues. but just as monetary policy affects not only risk - taking ( and therefore solvency ) but also general liquidity conditions, macro - prudential policies should also address liquidity risk. policies aimed at reducing liquidity risk are lagging behind those that improve the solvency of financial institutions. from a micro - prudential perspective, current proposals target liquidity and maturity mismatches of individual banks. regulators have suggested that each bank holds sufficient liquidity to survive a sudden, relatively short - lived shock, and that it funds long - term assets with stable sources such as long - term debt and deposits. these requirements reduce liquidity risk for each institution but neglect the systemic dimension of liquidity, and might be very costly in terms of limitations to maturity transformation, an essential function of the financial system for which there is high demand. 13 an alternative proposal would impose liquidity risk charges or levies that penalise short - term funding, still at the individual level ; 14 to help ease funding pressures on banks during a systemic liquidity crisis one could think of instruments with contingent maturity. 15 in fact, at the moment the thinking on the prevention of liquidity crises is still ongoing ; to mitigate acute liquidity shocks, as we have seen in the recent past, there is still no substitute for a determined intervention by central banks, even beyond the boundaries of their standard activity. during a crisis, individual banks ’ liquidity positions matter since those perceived to be more risky might be excluded from the market ; 16 in this case, only the central bank can make the market for liquidity function, by acting as a central counterparty. in the short run, central bank intermediation plays a stabilising role ; however, in the medium run it can increase the persistence of the shock by interfering with a market - led adjustment and can lead to moral hazard. 17 the bottom line here is that we need to develop macro - prudential policies that reduce liquidity risk ex ante in order to decrease the weight put on monetary policy tools during a crisis, since we don ’ t yet