national supervisory authorities will act as agents of the ecb in the supervision of smaller banks. the creation of the single supervisory mechanism is well under way and it will start operations in november this year. the transition to the banking union will be preceded by a review, the so - called “ comprehensive assessment ” of the euro area banking system in order to ensure that banks which come under the ecb supervision are adequately capitalized. the second component is the new bank recovery and resolution framework. it will give the authorities early intervention powers which make it possible to take decisive action in problem banks before the banks ’ own funds are exhausted. the framework will also give authorities new bail - in powers which should ensure that the taxpayer is only the last in line to recapitalize banks and normally not needed at all. in addition to the new harmonized rules on bank resolution, europe also needs a unified resolution authority, called the single resolution mechanism, with access to a resolution fund. the design of these institutions is under intensive negotiation. most likely they will start bis central bankers ’ speeches as an intergovernmental structure but the eu community elements will be reinforced over time. the third component of the banking union, in addition to single supervision and single resolution mechanisms, will be the harmonization of deposit insurance systems. i should mention yet another reform in the area of banking, regarding the structure of banks and the regulation of proprietary trading. a month ago, the european commission presented a legislative proposal which, if enacted, will give the authorities powers and under some conditions also an obligation to require of banking groups the separation of the riskiest trading activities from deposit banks. in the euro area, the competent authority will be the ecb. this proposal for structural regulation follows, at least partly, the recommendations of the eu expert group which i chaired and which submitted its report about a year and a half ago. the commission ’ s legislative proposal would also include an outright prohibition of proprietary trading, resembling the u. s. volcker rule. * * * the institutional developments which i have reviewed were not mainly directed towards managing the recent crisis, which fortunately seems to be gradually abating in europe. they are meant to prevent future crises, to avoid the repetition of the painful experiences of the last five years. but the reforms have served a purpose also in the present situation. they have contributed to the restoration of confidence in the financial markets so that tensions in the bond market, which peaked in 2011 and 2012, have reduced and the interest

the euro area has been 1. 97 % per annum. so, judging by the primary objective, we can say that the common currency has not disappointed the expectations of 1992. it must be emphasized that price stability has also been maintained relatively well during the recent financial crisis. in the early phase of the crisis, there was an imminent danger of a financial collapse and ensuing deflation. to keep the monetary situation under control, the ecb complemented its interest rate policy with a variety of unconventional or non - standard measures. these improved the liquidity of the banking system and the bond markets. the measures included, among other things, the much discussed bond purchases under the so - called securities market programme. these actions should be judged by the results. the euro has remained strong, the financial meltdown has been avoided, and inflation expectations have remained consistent with the ecb ’ s price stability objective. so, the crisis of the last years has not been a crisis of the euro as a currency. the currency has remained stable, and also strong in the international context. this achievement is remarkable, but it does not mean that there is cause for complacency. present challenges to monetary policy in the area of monetary policy, our fundamental task is to ensure that euro area citizens and the economy can put their trust in the euro, also in the future. in this task, there are two major challenges. the first challenge is the worldwide rapid increase in prices of raw materials and energy. this is quickly reflected in the inflation statistics, and monetary policy cannot do very much to stop it. but what monetary policy must do is to ensure that the cost impulses from the raw materials prices do not trigger second - round effects in domestic costs. in order to avoid second - round effects, it is crucial to keep inflation expectations well anchored to the ecb ’ s price stability objective. this is all about trust. ecb policy and the supporting communications must inspire public trust in price stability. the more firmly the inflation expectations can be stabilized, the better monetary policy can support recovery of the euro area economy. bis central bankers ’ speeches communications are really effective only if monetary policy lives up to its commitment to price stability. and this is why the independence of the ecb is important. central bank independence was the key to the success of the bundesbank, it has been the key to the success of the ecb, and it must be the key to future success. the second and more acute challenge to the