overcome, contributed to an inflow of capital looking to the european periphery, further mitigating fragmentation of financial markets in the eurozone. both components of the banking union, the ssm and the srm help reduce the negative feed - back loop between banks and sovereigns but do not completely eliminate it. bis central bankers ’ speeches let me start with the first building block : the ssm. one important objective of the ssm regulation is to improve the quality of supervision and to ensure homogenous supervisory standards across the euro area. the ssm, upon its operational start in november, will root its supervisory work on the best supervisory practices. the general principles, processes, and methodology for supervision will be described in the ssm supervisory manual of which a comprehensive public version is being prepared. the ssm will lead to a convergence of rules and standards and a harmonised supervisory culture. for example, by imposing common principles about methods and models ’ parameters that improve the reliability of banks ’ internal models it will address the problems created by differences in the way that banks calculate risk - weighted assets. importantly, the ssm will ensure that the same risks are given similar weights, knowing of course that the same types of risk can have different manifestations in different markets, in accordance with the local economic situation. there will also be a harmonised treatment of non - performing exposures and provisioning rules, which at present varies between jurisdictions and is not directly comparable for investors. more generally, the substantial compliance costs, from having to observe different sets of rules and different sets of reporting requirements, as well as having to interact with several different authorities, will be reduced. direct supervision of significant banking groups will be undertaken by joint supervisory teams that will comprise supervisors from both the ecb / ssm and national competent authorities, thus enabling a fully integrated approach to the supervision of cross - border banks. compared with supervision at national level, this integrated approach will enable the ssm to detect excessive risk - taking and the cross - border externalities associated with it, and to be therefore proactive if local financial developments develop into threats to broader financial stability. i expect all these changes in the supervisory framework to contribute to reducing fragmentation by creating a level playing field for financial institutions and spreading best practices across borders, thus removing the barriers that existed in the past. essential for de - linking banks from sovereigns is the trust that the financial system at large will develop in relation to the banks both directly and indirectly supervised by the ss

##m. this can help normalise interbank markets and overcome financial fragmentation. that said, high standard banking supervision is not centred on preventing bank failures at any cost. in fact, to effectively perform its tasks, a supervisor must also be able to let failing banks exit the market. this is the reason why the ssm has also been given the competencies to withdraw from credit institutions, the authorisation to operate. however, given the role of banks in the financial system and in order to safeguard financial stability, the supervisor has to feel confident that the resolution of banks is conducted in an orderly fashion. this brings me to the second pillar of the banking union. the establishment of the srm is the second crucial step towards addressing financial fragmentation and breaking the sovereign - bank nexus. the main point here is that the orderly resolution of banks, even big ones, may contribute to avoid costly rescues by sovereigns that may endanger their own finances. the srm puts in place a single authority responsible for the resolution of banks in the euro area and participating member states. this will enable swift and unbiased resolution decisions, which will address notably cross - border resolution cases in an effective manner. in this respect, the srm should be viewed as a necessary – and logical – complement to the ssm. it would indeed be ill - advised to elevate the responsibility for supervision to the european level, while keeping resolution at the national level. this would create a mismatch of responsibilities, undermine the credibility of the ssm as supervisor, and delay the resolution of banks, a task that has to be done swiftly. an important element of the srm is the single resolution fund, which will be financed via levies on the banking sector and gradually mutualised. starting with national compartments, it will become one truly single european fund in the course of eight years. by mutualising the bis central bankers ’ speeches cost of bank resolution, this approach will loosen the link between domestic banks and their sovereigns and further level the playing field. a shortcoming of the srm is the absence of a clear common financing arrangement that would provide additional temporary resources when needed. however, the ssm and srm are not enough to completely sever the ties between sovereigns and their domestic banks. the ssm and harmonised supervision may not be enough to build sufficient trust among banks and, on the other hand, the srm may face legal limitations to autonomously manage orderly resolutions of significant banks, using its