time, while allowing at the same time the effective implementation of monetary policy. the new risk control measures, which do not change the general characteristics of the framework and are not expected to impair the ability of banks to participate in our operations, were communicated by the ecb on 4 september, and will enter into force on 1 february 2009. i would like to highlight in particular the decision to require better rating disclosure standards. to be eligible as collateral for eurosystem credit operations, asset - backed - securities will need a rating that must be explained in a publicly available credit rating report, being a detailed pre - sale or new issue report, which should include inter alia a comprehensive analysis of structural and legal aspects and a detailed collateral pool assessment. moreover, rating agencies – and the eurosystem believes this is very important – would need to publish rating reviews of asset backed securities at least on a quarterly basis. by requiring that the result of the rating assessment as well as the regular surveillance reports are made public, the eurosystem can support the functioning of abs markets more widely through enhanced transparency, which is a pre - requisite to restore investor confidence. other important changes to the risk control include the introduction of a uniform haircut of 12 % to asset - backed securities for all residual maturities and all coupon types, as well as a valuation mark - down of 5 % to all asset - backed securities that are theoretically valued by the eurosystem. these two measures respond to a careful analysis of the liquidity characteristics of asset - backed securities, and in particular, of the valuation uncertainties arising when there are no market prices that could provide a reference for intrinsic value. by introducing both measures, the eurosystem can contribute to the restoration of normal conditions in the functioning of asset backed primary markets. 5. 2. lessons for enhancing the international distribution of liquidity the current turbulence has also demonstrated that global channels for distributing liquidity across borders may become seriously impaired. to prepare for that possibility, central banks should take steps to strengthen their capacity to counter problems in the international circulation of liquidity. two recent reports from both the financial industry and the central banking community have pointed out to the potential advantages of establishing or maintaining standing currency swap lines, 3 which may be quite important in emergency situations. from a technical point of view, the coordinated distribution of foreign currency to the domestic bank sector through swap lines is feasible and it is also possible to design it in such a way that it does not conflict

, 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