of non - performing loans, low profitability, and it and cyber security. for european supervisors, preserving the “ tough but fair ” character is to a large extent a matter of day - to - day supervisory practice. daniele will surely stress this point when she addresses you later. and there are external events such as brexit which demand our attention. i consider brexit to be manageable for banks, but it requires timely, thorough and comprehensive preparations. and because of the uncertainty it involves, supervisors have their own part to play in ensuring a smooth transition to a post - brexit era. it requires us to be responsive and pragmatic as well. therefore, i strongly welcome the commitment shown by ssm supervisors to cooperation and 1 / 6 bis central bankers'speeches open exchange. there is no need for me to go into detail on these subjects. as i mentioned just now, these are topics i very much imagine daniele will touch upon. instead, i wish to review the set - up of the european single supervisory mechanism and offer some ideas as to how it can be developed further. but for that purpose, i find it helpful to remind ourselves of the organisational principle of the ssm. it was not intended to be a single, hierarchical organisation, but rather a supervisory network. there are still many misperceptions on that matter. without doubt, the ecb has key competences regarding the ssm. the ecb assumes responsibility for the overall functioning of the project. and apart from directly supervising the large, “ significant ” credit institutions, it has also taken over various powers from the national competent authorities, the ncas – one such important power being licensing. but that does not make it a hierarchical undertaking. instead, different modes of cooperation were installed. for example, joint supervisory teams include personnel from ncas that now receive their instructions from the ecb, while inspectors from ncas continue to be directed by their employer. other nca staff again are on secondment at the ecb. the different modes of cooperation also become visible with respect to competences. ncas still have major tasks and competences beyond directly supervising the 3, 200 smaller, “ less significant ” institutions in the euro area. think of the roughly 1, 500 written procedures from last year : every single decision is approved by the supervisory board, which includes members from 19 ncas, thus boosting the transfer of knowledge from ncas to the ecb and ensuring that decisions

goods and probably for some final goods as well. but futures markets anticipate that prices of crude oil will increase gradually, which suggests that, once the adjustment to the current level plays out, energy prices will no longer work to restrain total and core inflation. and if a portion of the weakness in goods prices reflects efforts by producers to forestall or correct inventory imbalances, that restraint on pricing will dissipate as firms'corrective actions take effect. so, despite the recent favorable price data, i believe it is still too early to relax our concerns about whether the run - up in price pressures in the spring and summer of last year is truly unwinding and whether it is unwinding rapidly enough to forestall a pickup in inflation expectations. even with the opening of some slack in the manufacturing sector and in homebuilding, labor markets generally seem to have stayed fairly tight, with the unemployment rate at only 4 - 1 / 2 percent. although recent data indicate that labor costs were not rising as rapidly in 2006 as first estimated, labor compensation does appear to have increased more quickly over 2006 than over 2005. last year's increase in compensation also appears to have outpaced overall consumer price inflation. that development in and of itself does not necessarily indicate an increase in inflationary pressures, especially if it represents a process in which real compensation begins to catch up with the rapid increases in labor productivity earlier this decade. what would be problematic would be a pickup in the growth of nominal hourly labor compensation that was passed through to prices over the next several quarters, or one that was not matched, over a sustained period, by a comparable pickup in the growth of productivity. eventually, the resulting faster growth of unit labor costs would pose a serious threat to price stability. core inflation is still higher than it was just a year ago, and, as i noted, some of the very recent decline may result from one - time changes in relative prices rather than an easing in underlying inflation pressures. a very gradual decline in the trend rate of inflation continues to be the most likely outcome, but that path is still by no means assured, and in my judgment such a decline remains critically important to the sustained prosperity of the u. s. economy. in sum, conditions appear to be in place for a good year for the u. s. economy, one marked by growth that is moderate and sustainable and by inflation that will be lower than last year's. the economy appears to be weathering the