way. i have in mind, for example, all micro - payments, machine initiated payments, and payments in real time using online services. continuous monitoring of the current ecosystem is therefore pivotal to designing regulations that are flexible enough to be'future - proof'so to speak, in an attempt to accommodate the continuous flow of innovation. finally, and this is my third pillar, we must ask ourselves whether we, as regulators, are fully equipped to achieve the daunting task i have tried to sketch out so far or whether a closer interaction with payment industry might be useful. to be frank, we do not know a great deal about how to regulate areas where the boundaries among activities and subjects are blurred ; these are uncharted waters for us and a more prudent approach is needed. therefore, in addition to the rules on entities and activities and to the oversight framework on payments systems and services, it might be wise to rely on'soft'regulations based on the definition of standards and practices developed according to a logic of public - private collaboration ; this collaborative mode could ensure a sufficient degree of adherence with respect to ongoing technological development. a practical example of this approach is represented by the protocol that the bank of italy has signed with two italian universities – roma tre and cattolica di milano – to explore the role of smart contracts in dlts and to provide a basis for the development of technical standards and rules to be shared with those who, like the developers of the algorithms, are outside the traditional perimeter of intervention of the regulatory and control authorities ; the first results of this work ( a taxonomy of dlts and the relative smart contracts ) will soon be made public to collect observations and suggestions from 3 / 4 bis - central bankers'speeches all interested parties in order to be able to proceed to the most important phase for defining'good principles '. to conclude, the retail payments industry is an incubator of innovation. central banks and supervisory authorities can play a key role in ensuring that the positive externalities of innovation benefit consumers and businesses alike. the bank of italy is actively involved in this process by monitoring market developments, interacting with market operators and supporting the early adoption of digital technologies by the financial market. in this context – particularly with regard to interaction with the market – the activities of the bank of italy's innovation facilitators are noteworthy, especially those of the comitato pagamenti italia ( italian payments committee, cpi ), managed by the bank of italy, which

, the crisis in ireland has shown that problems in domestic banks can overwhelm the fiscal capacity of national sovereigns. the causality can also be the other way around, as the case of greece has shown, where fiscal problems have dragged down the banking system. these countries got caught in a vicious fiscal - financial feedback loop, which in the end also drags down the economy, breaks up the internal market, and impairs our monetary policy conduct. removing this vicious feedback loop is what banking union is all about. creating a banking union will be good for the euro, good for the internal market, and good for the recovery. it will be good for the euro, because it will help to repair our monetary policy transmission mechanism. in other words, it will ensure that the ecb ’ s low interest rates will be effectively passed on to those countries that probably need them most. it will be good for the internal market, because it will be of help to reverse the significant financial fragmentation that we have seen so far. and it will be good for the recovery, as banks will be put on a stronger footing, confidence will be improved, and ultimately credit will start to flow again to enterprises on affordable terms. but what are the necessary elements of a banking union? to our mind, two elements are indispensable : a single supervisory mechanism ( ssm ) and a single resolution mechanism ( srm ). let me start with the single supervisory mechanism. the ecb has been asked to assume responsibility for this mechanism, and to mould the existing national supervisory authorities into an effective and efficient federal supervisory team. we are making good progress on this front, and the ssm should become fully operational in the last quarter of 2014. before we take on this task, we want to get an adequate view of what we will be supervising. in the coming months, the ecb will therefore undertake a balance sheet assessment. the importance of this exercise cannot be overestimated. it is an extraordinary opportunity to rebuild confidence in the banking sector and promote the long overdue repair of bank balance sheets, which in turn is a precondition for a sustainable economic recovery. one particular point needs to be stressed : credible national backstops must be put in place. if not, the credibility of the whole exercise is put at risk as the outcome will then almost certainly be negatively perceived by market participants. doing this balance sheet assessment without a backstop in place would be a bit like getting on a boat