by management to publish nominations for board members on the company ’ s proxy statement. however, increasing shareholder access to the proxy statement may not be without costs. some have argued that the democratization of the nomination process may pave the way for special interests to undermine the goal of maximizing shareholder value. ultimately, the question of whether institutional investors mitigate corporate governance problems is an empirical one. academic work in this area has not convincingly linked institutional holdings to firm performance. but some studies have shown that institutional shareholder activism does appear to be motivated by efforts to increase shareholder value, and other studies have confirmed that institutional activism is associated with a greater incidence of corporate governance events, such as shareholder lawsuits and corporate takeovers. based on these findings, it would be premature to conclude that the rising share of corporate equity held by institutional investors is clearly good in terms of sound corporate governance. that said, believing that institutional shareholder activism has benefits and that these benefits may help pave the way for market discipline in a broader sense does seem reasonable. corporate governance at mutual funds perhaps another reason for being cautious about the benefits of institutional ownership is that institutional investors have their own governance problems. as you are no doubt aware, such problems at mutual funds have been manifest in headlines over the past year. i would now like to discuss both the conflicts of interest that lie at the heart of many of the recent mutual fund scandals and the responses by investors and regulators. arguably the most fundamental conflict of interest at mutual funds occurs because the compensation of mutual fund managers and management companies is generally tied to the value of the assets they manage. as a result, managers have an incentive to attract cash, and they may do so by methods which impose costs on long - term shareholders. for example, as was heralded in the press, a few mutual fund firms allowed late traders to exploit stale share prices by rapidly trading mutual fund shares. long - term shareholders suffered reduced investment returns, but management companies collected extra fees on the “ hot money ” while it was in their funds. importantly, long - term investors were not informed of these deals. another method for attracting cash is to compensate mutual fund brokers for bringing in new money. so - called “ directed brokerage ”, for example, is a means of rewarding a broker who sells mutual fund shares by giving the broker a slice of the fund ’ s securities trading business. such compensation arrangements clearly give brokers an incentive to sell these mutual funds regardless of whether the funds are appropriate for

further steps towards improving the business environment, reducing the regulatory burden and pursuing more growth - friendly taxation. bold and effective implementation is not just in the interest of the individual countries, it is also key for strengthening the resilience of the economic and monetary union and for supporting growth at the global level. one domain in which the euro area has been bold and determined concerns the financial sector, and more in particular the banking sector. indeed, important further progress on the road to banking union has been made since our previous imfc meeting. the ecb ’ s legal, governance and organisational infrastructure that, as of 4 november, will support the operations of the single supervisory mechanism ( ssm ), is close to being completed. the supervisory board has been fully operational since the start of this year, helping to steer this process. in less than one month from now, the ecb will be assuming full responsibility for the micro - prudential supervision of all banks in the euro area and more directly by becoming the single supervisor of around 120 significant banks. together with the national supervisors, the ecb will be enabling and facilitating coherent and consistent application of the eu single rule book across the euro area in the single supervisory mechanism. as a second pillar to the banking union, the single resolution mechanism ( srm ) will start operating in the new year, even if the single resolution board will only start exercising all of its responsibilities from 1 january 2016 onwards. based on a wider - ranging set of pertinent legal provisions in the financial regulatory domain, the banking union in europe is about to take off, barely two years after this important decision was taken by the european council. one of the elements in preparation of the banking union has been the so - called comprehensive assessment of all significant banks in the euro area by the ecb. it has been a challenging undertaking, involving almost 85 % of the total balance sheet of euro area banks, more than 6, 000 supervisors and auditors were involved in the execution of the asset quality review. an eu - wide bank stress test was added on to it. numerous quality checks at all levels were undertaken to underpin the credibility of the exercise and to ensure level playing - field conditions across the participating countries and banks. the results of this yearlong exercise, which will become available on 26 october, will substantially increase transparency of balance sheets of european banks. the exercise has already contributed to a further strengthening of the capital base of banks and for some of them further efforts will be