jorg asmussen : intervention in a panel on “ the future of europe ” speech by mr jorg asmussen, member of the executive board of the european central bank, at the iif ( institute of international finance ) 2013 spring membership meeting, paris, 26 june 2013. * * * mr prot, ladies and gentlemen, thank you for inviting me to speak on this panel. as the central bank of the euro area, banking union is of key concern to the ecb. it is essential to increase confidence in the euro area banking sector, to reintegrate financial markets, and to improve the transmission of our monetary policy. it is therefore among the most important issues for the euro area today. while banking union comprises a number of regulatory and legislative initiatives, at the moment there are two key priorities. first, the single supervisory mechanism ( ssm ). second, the single resolution mechanism ( srm ), operating under the legal framework established by the bank recovery and resolution directive ( brrd ). a common deposit guarantee scheme, while important, is something more for the longerterm. let me say a few words on each of these elements, and how they fit together. starting with the ssm, we expect the regulation to be approved by the european parliament in september and for the ecb to take over supervisory responsibilities one year thereafter. in the meantime, preparatory work is underway involving close cooperation between the ecb and the national authorities that are competent for supervision. the work includes mapping the euro area banking system, developing the supervisory model and, perhaps most topically, preparing the comprehensive assessment of all banks that will come under direct ecb supervision. this is required by the regulation and will apply to around 130 to 140 banking groups operating in the euro area. the assessment will involve an asset quality review and balance sheet assessment to be conducted by the ecb in the first quarter of 2014. this will then feed into the overall stress test to be conducted by eba, in cooperation with the ecb, in the second quarter of 2014. our objective is for the ssm to start with a clean slate and to restore credibility in the european banking sector after two previous stress tests failed to do so. we are therefore aiming for the assessment to be as rigorous as possible. it is clear that the results of the asset quality review and stress test may require recapitalisation or other means of support for weak banks. if banks cannot raise new capital themselves, the fiscal backstops which

it, at least for the medium - term. under brrd, banks will have to maintain a minimum level of liabilities that are eligible to be bailed - in, meaning shareholders and creditors will absorb the majority of losses. moreover, it seems very likely that brrd will contain a depositor preference rule, with insured deposits given the highest priority. this means that only in extreme cases will deposit guarantee schemes have to pay out. national arrangements, harmonised under the deposit guarantee scheme directive, should therefore be sufficient. taken together, these two elements – the ssm and the srm – form a robust foundation for banking union. it is essential that we make progress on each in parallel. thank you. bis central bankers ’ speeches