of domestic policies, which is currently being implemented in those countries suffering the most significant stress. but, at the same time, the elimination of any perception of redenomination risks can only be fully accomplished if – in addition to the required domestic policy action – the central bank is fully and credibly committed to intervening in sovereign markets as far as is necessary to avoid the pricing of sovereign risk becoming self - fulfilling. in that regard, the recent announcement by the european central bank of its determination to conduct unlimited intervention in the sovereign secondary markets, provided effective conditionality is fulfilled, constitutes a significant step towards the normalisation of market conditions in the euro area. yet, the return to a smoothly operating monetary union cannot be completely achieved by simply relying on ad - hoc reactions by policy - makers. institutional arrangements must be reviewed in order to restore adequate incentives for domestic authorities to prevent the reemergence of destabilising imbalances and to ensure that any residual risks arising in specific jurisdictions that could affect the area as a whole would be addressed by integrated mechanisms operating at the euro area level. the recent changes introduced in the european union to strengthen the requirements and the mechanism for the surveillance of domestic fiscal policies and structural reforms, together with the creation of the efsf and the esm – which we now know will be soon be launched – are good examples of the required institutional reforms. bis central bankers ’ speeches at the same time, a specific source of risks for the smooth functioning of monetary union that needs to be addressed directly is the financial instability experienced in specific jurisdictions. as we have seen in the last few years, the deterioration of the perceived solvency of financial institutions located in specific countries within the monetary union can have spillover effects across the financial sector as a whole, can contribute to a disorderly functioning of wholesale markets and can put great stress on the public finances of the countries affected. consequently, the soundness of financial institutions is of systemic importance within the monetary union and should therefore be preserved through the appropriate integrated crisis prevention and resolution mechanism. against this background, a consensus has emerged of unprecedented strength on the need to take steps to create a banking union. the first step would be the adoption of a single supervisory mechanism. a regulatory proposal for such a mechanism has been released this week by the european commission. the proposal has three main features. first, the assignment to the ecb of supervisory responsibilities for all banks in the euro area, and possibly also for banks in countries outside the

and learn from our mistakes. institutions, much like the people they comprise, must not only be independent, they must also retain an open, approachable attitude. this mindset, combined with our integrity and spirit of public service, will be crucial if we are to continue working to make the banco de espana a respected, trustworthy, impartial institution committed to the well - being of the society in which we live. thank you. 4 / 4 bis - central bankers'speeches