is indeed to create one system of european supervision results from the legal competence given to the ecb over all the banks in the participating countries. naturally at the centre of the system, the ecb could not directly supervise all the thousands of existing banks. only the more significant banks will be subject to that direct supervision. all the others will continue to be supervised by the competent national authorities. the ssm is more than just the ecb and includes all the national supervisors and central banks and so will have to function in a much decentralised way. decentralisation does not mean fragmentation. what makes the ssm work truly as one system, besides the legal competence over all the banks, are some other main features : first, all the components of the system will have to act in accordance with a system of guidelines, ecb specific regulations and manuals of supervisory practices that will be approved at the center by the supervisory board. the respect for these rules will be monitored and subjected to peer reviews. second, the center at the ecb will receive all the supervisory data, regarding all the banks third, the bodies at the center of the system, at the ecb, have the power to transfer to direct supervision any bank or group of banks that may be considered relevant and may be the origin of systemic risk. as we know from the crisis not only big banks may the source of more general financial instability. this legal competence is also an important persuasive tool to ensure harmonised supervisory practices throughout the system. extensive powers of the ssm a second important feature of the ssm regards its extensive powers in the conduct of its supervisory function. the ssm, with the ecb at its centre, is entrusted with an extensive set of micro - and macro - prudential powers, covering all key tasks relating to the prudential supervision of credit institutions. this broad array of tasks and powers is crucial, as it is the foundation for the ssm to effectively supervise banks. in concrete, the micro - prudential tasks range from the authorisation of credit institutions to having the power to carry out early intervention when a bank is in financial distress. these tasks are matched with a broad set of powers to carry them out. in this context, the ecb may conduct all necessary investigations and on - site inspections and obtain all necessary information to carry out its task effectively. in addition, in order to enforce its decisions and rules, the ecb also avails of sanctioning powers

affecting assessments of banks ’ capacity to withstand credit losses. furthermore, work done within eba on risk assessment inputs to the supervisory review process – a topic that i will return to in a second – also represent important steps in this harmonisation process. the establishment of the ssm also requires the harmonisation of supervisory risk assessment frameworks. in fact, amid a vast range of indicators of bank - specific vulnerabilities and partial analysis, there is no harmonised risk assessment methodology across europe that could support a common framework for supervisory assessments in the eu. this would entail the creation of some sort of european supervisory rating system in the spirit of the uniform financial rating system introduced by us regulators in 1979. special emphasis is needed on definitions and forward - looking dimensions that could signal bank distress further down the road. quantitative indicators and qualitative judgements about governance and risk management will be included in the risk profile of banks and their overall classification. here as well, the ecb stands out as well equipped to support this ssm task, in cooperation with eu and national authorities. over recent years, efforts have been made to strengthen the risk surveillance function to assist ecb responsibilities in the field of financial stability. this has to a large extent published in official financial stability publications, most prominently, the ecb financial stability review. i would highlight, in particular, the importance of work conducted in the area of early warning models. beyond investments in developing analytical tools and models that can provide early warnings of the build - up of financial imbalances at the aggregated level, efforts have also gone in the direction of the analysis of individual banks. methodologies combining bank - specific indicators, in the spirit of the camels indicators, with country - specific indicators for the banking sector and country - specific macro - financial indicators are being used and will be further explored to predict distress in banks. 7 in this respect, model - based frameworks of contagion accounting for vulnerabilities arising from interdependencies across banks are also being developed. there is a long way to go on the analytical front but these are already important first steps that should cater for a solid establishment of the new framework for supervision in europe. these efforts are essential in the construction of the banking union. conclusion let me conclude. the agreement reached on the ssm by the council shows the resolve to strengthen the emu by strengthening the institutional financial framework. the ssm is a key component, but it is only one component