pentti hakkarainen : banking supervision and central banking speech by mr pentti hakkarainen, deputy governor of the bank of finland and chair of the board of the fin - fsa ( the finnish financial supervisory authority ), at the 3rd fin - fsa conference on “ eu regulation and supervision ”, helsinki, 5 june 2014. * * * in her opening remarks, anneli tuominen, director general of the fsa, touched upon a number of important questions concerning the costs and benefits of the banking union to the supervised banks themselves. i would like to follow up on this by asking how is the banking union beneficial from a central banking perspective? in the euro area, the connection between the new supervisory mechanism and central banking is evident from the institutional set - up. the common euroarea banking supervision, the single supervisory mechanism ( ssm ) has been attached to the ecb, which will in november 2014 assume new supervisory powers. this solution – as opposed to establishing a separate european supervisory entity – follows largely the need to establish the ssm quickly within the limits of the current eu treaties. we should not forget, however, that in many ways the ecb responsible for bank supervision is not the same ecb that is responsible for monetary policy. the decision - making of the two functions have been purposefully kept separate and on supervisory matters the new supervisory board will have a predominant role, even if the council must still approve these decisions afterwards. the two functions will also have separate staff, restrictions on exchange of confidential information and are even located in separate buildings in different sides of frankfurt. so, apart from the institutional set - up, what does the banking union mean to the euro area and the european system of central banks? i would expect the primary benefits to relate to its impact on broader financial stability and the degree of european financial integration. let me briefly touch upon each of these in turn : • in the short - term, the ongoing comprehensive assessment of banks ’ balance sheets encourages euro area ’ s ailing banks to return to full health. balance sheet transparency and confidence in banks ’ capital levels will, in turn, contribute to the efforts to reduce the interdependence between banks and sovereigns. to be clear, banking union is not a solution by itself to shore up highly indebted euro area economies back to financial and fiscal health. addressing such problems require many additional efforts, not least of all political perseverance in implementing structural reforms in the affected

became prime minister of the uk. they de - blocked the still pending issues and the eec membership for the uk, ireland, denmark and norway was again on the table. in 1973, the uk joined the eec together with ireland and denmark. for finland, this was the first brexit, then from efta. due to the importance of the british trade, this was a serious challenge, and negotiations were begun on a free trade agreement between finland and the eec. 3 / 5 bis central bankers'speeches finland and the other remaining efta countries were offered free trade in industrial goods. the soviet attitude towards finland, however, had again tightened after the occupation of czechoslovakia. the process leading to the free trade agreement with the eec involved various gestures and measures to convince the soviet leadership that an agreement would not mean a re - orientation in finland ’ s foreign policy. the free trade agreement between finland and the eec was successfully concluded in the end of 1973. jacques delors became president of the european commission in 1984 and lord cockfield the vice - president responsible for the internal market. they launched a major project for the single market. it deepened integration and the four freedoms : the free movement of goods, services, labour and capital. the follow - up question for finland and the other efta members was how to guarantee access to the single market. the negotiations led to the creation of the european economic area ( eea ). the eea included all four freedoms : the free movement of goods, services, capital and labour, plus participation in a cohesion fund. at the time when the project was started, it was supposed that efta and the eec would remain separate organizations. but the world and europe changed. the unification of germany in 1990 and the dissolution of the soviet union in 1991 changed everything. the eea agreement was signed on in may 1992 but by that time, finland had already applied for eu membership. the eea agreement entered into force in january in 1994. this was the solution for finland for one year only. why did finland apply for eu membership so soon? president mauno koivisto explained this well in his speech in parliament : we want to have a seat at the table where the decisions are made. we needed the european economic area, but we also wanted to have influence. we wanted both access and a say. membership negotiations with the ec ( soon to be the eu ) lasted over a year, starting in the