euro zone willing to enter into cooperation arrangements with the ecb. second, the adoption of mechanisms to ensure that the ecb ’ s supervisory tasks are strictly separated from the conduct of its monetary policy. third, the involvement of national supervisors in the preparation and implementation of decisions. the proposal is in my view well founded. in particular, it makes sense to subject all financial institutions in the euro area to a single supervisory mechanism. recent experience shows that the instability of medium - sized or small institutions with limited links to other european institutions may sometimes generate disruption at both the national and the euro area level. moreover, the coexistence of different supervisory regimes for institutions sharing the same market place may generate competitive distortions, which should be avoided. similarly, it is important to establish institutional mechanisms to mitigate any potential conflict between the objectives pursued by the supervisory and the monetary policy functions. i believe that the crisis has already helped to allay our concerns about the extent to which those conflicts could actually arise in practice. indeed, most central banks have understood that financial stability considerations should be taken into account when designing monetary policy measures without challenging the priority that should be given to the price stability objective. in any case, from a procedural point of view it seems reasonable for the governing council of the ecb – the interest - rate setting body – to make relatively extensive delegations to the supervisory board envisaged in the draft regulation as the operational body through which the ecb will exercise its new supervisory functions. finally, on the involvement of national supervisory authorities, the draft regulation envisages a model under which the ecb will have ultimate responsibility for the tasks conferred on it by the new regulation. in performing the new functions, the ecb will however take full advantage of the expertise of national authorities. the principle under which national central banks and supervisory authorities are to help in preparing and implementing decisions is an essential ingredient of the new supervisory mechanism. at the same time, it is probably reasonable to develop that model in such a way that the principle of delegation is flexibly used so as to take into account the different nature of the supervised financial institutions and the specific supervisory functions to be performed. although the involvement of national authorities should always be required, the ecb should normally participate more directly when institutions of systemic importance and actions of a strategic nature are involved. the draft regulation foresees that the ecb will start performing its functions through national supervisors already in january next year and that the new system will be fully operational

set up covering attestation, widening investment flexibility, and making the ma calibration more risk sensitive through the use of credit rating ‘ notching ’ [ 17 ]. i would like to thank all those who have participated in the over two dozen meetings so far, for the broad range of information they have provided, for the lively discussions and particularly for generating constructive options. it is important that we are able to discuss and understand the technical issues, and such open dialogue will improve the policy - making process. the subject expert groups have helped reduce the risk of there being surprises to insurers when we consult on proposals later this year. but we are not front - running the consultation, which will be public and open to all respondents, industry and wider stakeholders in the sector. building on this approach, next month we will be convening a similar group to think through detailed principles for the stress testing regime, and we are also putting together a group of expert users of insurers ’ disclosures which i ’ ll come back to shortly. the supervisory measures set out by hmt are not independent of the wider operating environment. rather there will be a strong interplay between market forces, firm behaviour, regulatory requirements, and the increasingly important role that disclosures will play to promote market discipline. this interplay will become even more relevant as the bpa market continues to grow and mature. indeed, market discipline via greater disclosure has also been brought to the fore by the solvency uk package. the disclosures required on stress testing together with the publication of individual firm results will provide a transparent independent measure of firm resilience to the markets. this will benefit all stakeholders including both advisors to db schemes and scheme trustees when seeking to transfer liabilities to the insurance sector. for insurers, greater transparency could contribute to reducing the cost of capital, opening more opportunities for firms with stronger financial positions to benefit from the expanding market. in the banking sector, published stress tests for our largest banking groups have delivered greater transparency, better diagnosis of where weaknesses are, and a much deeper ability to compare the strengths and weaknesses of different business models, allowing counterparties and capital providers to make better informed judgements about counterparty risk when contemplating a transaction [ 18 ]. hence there should be a strong built - in incentive within the system to do disclosure well and for us as regulators this would be a sign of a market functioning efficiently. that ’ s why i ’ m keen we engage with current and prospective users