peter praet : we need to complete the banking union speech by mr peter praet, member of the executive board of the european central bank, at the eurofi conference, malta, 6 april 2017. * * * the eu moved in less than five years from decentralized banking supervision and resolution to the single supervisory mechanism and the single resolution mechanism, based on the single rulebook. this is part of an overarching effort to create a sound institutional framework for financial integration in europe. but there still are a number of legal, institutional and political problems to overcome before a european bank can operate in the banking union as it operates in its domestic market. several dimensions need to be taken into account : first, private risk - sharing. the financial system is a private risk sharing device, but we have learned the lessons from the financial crisis in terms of budgetary costs, when excessive risk - taking by the private sector was eventually borne by the public sector. we do not want to revert to the old world of implicit government guarantees for risky behaviour of financial institutions. this entails making banks equally liable across countries for the amount of risk they want to take into their respective balance sheet. the general principle of the new european rules such as the bank recovery and resolution directive is to absorb bank losses by bailing - in shareholders and uninsured creditors. the new rules contain sufficient flexibility to deal with exceptional situations where public money may be required to ensure financial stability. second, public risk sharing. a certain level of public risk sharing is necessary to create confidence in the overall financial system. even well - capitalised banks can fall victim to runs and contagion. this is why central banks act as lender of last resort and fiscal backstops should be in place to ensure trust in the stability of the financial sector. in the banking union, both supervisory responsibility and the fiscal backstop need to be at european level, to underpin durably confidence in the area - wide financial system. just as necessary is the establishment of a european deposit insurance system ( edis ). the current situation, where supervision is common, but the consequences of potential bank failures are still predominantly national, should not last. in such an incomplete framework, national considerations inevitably continue to affect supervisory decisions. this is not without consequences for the incentives for banks to become more european. concrete examples include a lack of fungibility of liquidity or capital. the fact that the euro area is not considered as a single jurisdiction

monetary policy that has been conducted. it is a little like taking medicine in connection with an illness and when cured drawing the conclusion that it was unnecessary to take the medicine. on this point i feel that the events of spring 2015 are a good illustration. the ecb had announced in january that it intended to buy securities over slightly more than a year to come for the equivalent of sek 10, 000 billion ( around 2. 5 times the size of swedish gdp ). this is indeed a very substantial monetary policy intervention. within the course of just a few weeks the krona exchange rate appreciated significantly against the euro, from almost 9. 65 krona per euro to just over 9. 10. this was in itself a large appreciation of almost 6 per cent, but the real danger lay in the fact that it could have been much worse. during 2014 and up to spring 2015 the us dollar and the british pound sterling had appreciated by between 15 and 25 per cent against the euro. there was agreement on the market that differences in monetary policy were decisive for the different development paths of these currencies and the swedish krona against the euro. if the swedish krona had in this situation so to speak appreciated level with the dollar and sterling, the total appreciation would have been around 30 per cent. this would have meant a very serious deterioration in the competitiveness of the swedish export industry and would have entirely changed the playing field for the swedish economy ( see figure 8 ). under such circumstances there would certainly not have been any growth in the vicinity of 4 per cent in 2015. my own impression is that the risk the swedish economy was exposed to at this stage is severely underestimated by many commentators. they appear to assume that the strong performance in 2015 would have happened more or less regardless of monetary policy and the krona exchange rate. the fact that the riksbank in february reacted by introducing a negative repo rate and beginning to buy government bonds is not considered to have played any major role. although it is possible that the outcome would not have been quite as bad as i have outlined above, i think that it is extremely misguided to assume that monetary policy was more or less insignificant. there is also good reason for a reminder of a circumstance that tends to be forgotten. the current debate sometimes gives the impression that the swedish economy has for some time been in a situation of almost overheating. but the fact is that we fairly recently, according to most empirical estimates, once again attained