various approaches to breaking through this vicious circle. one of them is the planned european banking union. one pillar of the banking union is joint banking supervision for large banks, the single supervisory mechanism. the ecb is planning to launch the single supervisory mechanism on 4 november. as you can imagine, this is a formidable challenge. it is a project that is comparable to the creation of monetary union but scheduled to be rolled out at seven times the speed. centralising supervisory powers at the european level will foster a comprehensive and unbiased view upon banks. it will also enable policy action that is not held hostage by national interests. thus, it will contribute to more effective supervision and better crossborder cooperation and coordination. against this backdrop, non - euro area countries might also benefit from joining the single supervisory mechanism. for countries such as denmark the door is open to join and personally, i would be very happy should denmark, at some point, decide to join the single supervisory mechanism. but all of that cannot entirely rule out the possibility of bank failure. and that is a good thing. after all, the risk of corporate failure is a core element of the market economy. thus, the banking union cannot rest on one pillar alone. a second pillar is necessary to keep everything in balance. the single resolution mechanism will be that pillar. european bank supervision requires european bank resolution – otherwise there would be an imbalance between liability and control. in this regard, the eu has made crucial progress recently, with the adoption of a harmonised bank resolution regime and the decision to create a single resolution mechanism. the single resolution mechanism will allow authorities to restructure or resolve banks without putting taxpayers ’ money at risk. in the future, whenever a bank fails, resolution costs will have to be borne first by shareholders and creditors. after that, a bank - financed resolution fund will come into play, and only as a last resort are public funds to be used and the taxpayer made to pay. the bundesbank welcomes and supports this as an important complement to common european supervision. most importantly, the banking union has to start with a clean slate. thus, one of the biggest preparatory steps is the comprehensive assessment of those banks which will fall under european supervision. this comprehensive assessment consists of two elements : a backward - looking asset quality review and a forward - looking stress test, which also applies to four danish banks. the objective of the asset quality review is to uncover legacy assets in banks ’ balance sheets that were accumulated while

sabine lautenschlager : european monetary and financial union – what is needed in terms of banking supervision? speech by ms sabine lautenschlager deputy president of the deutsche bundesbank, at the symposium on “ central banking – where are we headed? ”, in honor of stefan gerlach ’ s contributions to the institute for monetary and financial stability ( imfs ), organized by the imfs and the house of finance, goethe university, frankfurt am main, 7 february 2013. * 1. * * introduction ladies and gentlemen we come together today to honour professor stefan gerlach ’ s contribution to the institute for monetary and financial stability. stefan has certainly proven time and again to be an outstanding scholar who is able to connect theoretical considerations with the requirements of reality. and reality is what is needed, especially in times of stress like these. ladies and gentlemen, the crisis we are experiencing is without doubt the most extensive and worst economic crisis of recent decades. i would not miss it at all ; but as we have to endure it, we should all look to fulfil the original meaning of the word “ crisis ”, which is “ turning point ”. and to reach this turning point in the positive sense of the term, we need to seize the opportunity and use the lessons learnt to make the financial system and the monetary union more resilient. with regard to the banks as one important part of the financial system, we have made some important progress so far. banks have to comply with higher capital and liquidity standards ; the requirements for adequate internal control systems and an appropriate governance structure have also been tightened substantially. furthermore, the requirements to be met by supervisors have changed significantly, too. the fiscal and economic state of affairs of the emu ’ s member states is improving as well. to achieve further progress at the national level, governments need to adhere to their decisions to increase investor confidence and economic competitiveness with fiscal consolidation and structural reforms. and we have seen some progress regarding the architecture of europe ’ s financial supervisory system – even if one might ask whether it is sufficient with respect to the risks and liabilities increasingly shared at the european level. national governments seem to have no great wish to give up major parts of their sovereignty, with one exception in my view. over recent months, the european governments have agreed on a european banking union or, more specifically, a banking supervisory set - up at european level. the bundesbank welcomes the proposal. it has the