pentti hakkarainen : banking union – the “ game - changer ” in the european financial markets speech mr pentti hakkarainen, deputy governor of the bank of finland, to ambassadors and representatives of the eu - countries in helsinki, helsinki, 11 december 2014. * * * accompanying slides can be found on the bank of finland ’ s website. your excellences, it is a great pleasure for me to tell you today about the banking union and give a short overview on where we are today. the banking union creates a comprehensive legal and institutional framework providing authorities powers and tools to deal with ailing banks. major steps have been taken already, but there is still some work ahead. the key lesson we have learnt is that economic dislocations without proper arrangements to tackle troubled banks have devastating effects on the real economy, taxpayers and the whole society. and regaining growth proves to be painfully slow and long - lasting. the banking union is the game - changer and it will bring a new culture into the financial markets. the banking union the banking union is comprised of three different, although integrated, parts. the single rulebook provides a foundation for the banking union. it is based on the idea of harmonised regulatory requirements, such as capital adequacy rules for banks. these are achieved through european legislation and lower - level technical standards. the second main pillar of the banking union is the single supervisory mechanism which started its practical operations just over a month ago in the beginning of november. the third important pillar is the single resolution mechanism. the srm will gradually start its practical operation in the beginning of 2015. the banking union will help us prevent banking problems. i would argue that there will be fundamental cultural change not only in the supervisory crisis management and regulatory framework for banks but also in the banking industry. in the future we avoid use of taxpayers ’ money as a rule and bail - out would be only as a rare exception. this in turn means also correct incentives in banking and hence a more stable financial system. the single supervisory mechanism after the successful comprehensive assessment process, the ssm is up and running. the ssm was established to ensure that strong supervisory standards are applied in a consistent manner across the euro area. and the fundamental goal is to strengthen the confidence and resilience in the banking sector. to achieve these goals, the ssm, with the ecb at its centre, has been entrusted with an extensive set of micro - and macro - prude

and moves us to the culture of the bail - in. bail - in will be the rule, bail - out a rare exception. as from the beginning of 2016, or in some countries even earlier, the brrd requires bail - in of shareholders and creditors equal to at least 8 % of the total liabilities of a bank. the new powers to bail - in bank debt holders are a crucial, element of the future resolution mechanism, which should limit the use of bail - outs significantly. the srm with its supranational decision making body and resolution powers, ensures efficient decision making procedures, adequate resolution financing arrangements and equal treatment. it has the same institutional and geographical scope as the ssm. single resolution board the regulation provides for a single resolution board with broad powers. upon notification by the european central bank that a bank is failing or likely to fail, or on its own initiative, the board would adopt a resolution scheme placing the bank into resolution. the board will consist of a chair, a vice - chair, four full - time appointed executive members and the representatives of the national resolution authorities of all the participating countries. it will exercise its tasks in either a plenary or executive format. it will determine the application of resolution tools and the use of the single resolution fund. decisions by the board will enter into force within 24 hours of their adoption, unless the bis central bankers ’ speeches commission or the council, acting by simple majority on a proposal by the commission, objected or called for changes. the national resolution authorities will be responsible for the practical implementation of the resolution schemes. however, the board ensures that there is no national bias and the identical cases are treated identically. single resolution fund the srm includes a special resolution fund to provide resources for implementing resolution tools. the single resolution fund will be financed via levies on the banking sector itself. the fund will ensure the availability of medium - term funding to enable the bank to continue operating while it is being restructured. it has a target level of €55 billion and can borrow from the markets if decided by the single resolution board. it will reach the target level over eight years, starting in 2016. during that transitional period, there will be national compartments which will be progressively merged. the fund makes banks not only less likely to fail but also safe to fail – meaning that they can be resolved without cost to the taxpayers and without significant disruption to the financial markets or the economy at large. the fund is not to capitalize