dynamics of european integration. let me elaborate on some key features of the banking union – a project with which i am closely associated. the fragmentation of the banking system along national lines has posed a direct threat to the integrity of the single currency. we need to break the doom - loop between sovereigns and banks, restore the confidence of depositors and investors – in fact rebuild trust in the whole financial system – as well as ease the reintegration of financial markets. the banking union will help to restore the proper transmission of monetary policy and relieve the ecb of some of the tasks undertaken during the crisis. its importance and urgency cannot be overemphasised. the banking union comprises two main parts. one is the single supervisory mechanism ( ssm ), which is scheduled to start operating at the ecb in frankfurt, at the earliest 12 months after the adoption of the regulation. the second part is the single resolution mechanism ( srm ), which is a siamese twin. the ecb cannot exercise this task as it will undertake the analytical part of supervision. a separate authority is needed ; perhaps one that is attached to the esm, for the resolution task as it implies a distributional impact which belongs to the executive prerogative. still, close cooperation is warranted with the ssm and dg competition. what is also clear is that the resolution body needs to operate at the same level as the supervisor, i. e. the european level. this becomes even more obvious amid the potential need to deal with cross - border operating banks. the ssm will be a single supervisor for all banks established in the euro area, plus those banks established in the eu countries which have entered into a close cooperation with the ecb. so it will have a truly european focus. it should create a level playing field for the european banking industry and remove any national biases or supervisory forbearance, and prevent the hiding of bad assets – or even leniency – towards so - called “ national champions ”, a phenomenon that might have become more acute during the crisis. it is a myth that such champions were in the interests either of domestic economies or of national taxpayers. but the ssm will go well beyond that : it will result in the elimination of asset and liability matching on a national level that has done so much harm. how will the single supervisory mechanism function in practice? there will be a twotier system of banks. the banks considered to be systemically important, about

, “ the financial trilemma ”, economic letters, 111 ( 2011 ), pp. 57 – 59. bis central bankers ’ speeches what are the strengths? despite the depth of the crisis, the exceptional “ flow and stock adjustments ” under way, and ongoing financial market tensions, there are still some strong components supporting the building of the new euro area framework and holding things together. the first strength is the resilience of the single market, which has steadily transformed the now deeply interconnected euro area economies. companies and banks have a european perspective and reach. we are each other ’ s stakeholders. economic integration is a diffuse process. it is the true engine of european integration and is generating largely benign effects. the single market represents the intrinsic value of the euro area. it is a common good. it is an asset shared by all its citizens – a fact which is not given enough recognition as a stabiliser during these difficult times. the second strength lies in the solidity of our financial infrastructures : they have withstood the full force of the crisis. the trans - european automated real - time gross settlement express transfer ( target2 ), has enabled money market access throughout the crisis and for all countries : the cumulated imbalances are now steadily receding. in 1998 there were 18 large - value payment systems : that number fell to six in 1999 and now there are two, which means that both efficiency and financial stability have been enhanced. central clearing counterparties ( ccps ) for securities and derivatives declined from 13 in 1999 to nine in 2012. this entails greater efficiency gains by pooling activities. and more is coming. in 2008, the single euro payments area started to take effect due to time - lags. and the securities settlement systems will change radically once target2 - securities becomes operational. this project is fully on track. the third strength lies in the widespread acceptance of the need for adjustments and reforms in all dimensions of the crisis. the political authorities have taken action. they are already overhauling the political economy of the euro area, and establishing new governance to restore fiscal sustainability and prevent and correct macroeconomic imbalances. the stability and growth pact has been tightened up by the so - called “ six - pack ” of economic governance measures, including the macroeconomic imbalance procedure ( mip ), and they in turn have been complemented by the “ two - pack ”. moreover, euro area countries are summoning up the courage to change – although