. the aim of the banking union is to establish transparency, stability and incentive - compatibility in the euro area financial market. conclusion i have outlined what we at the ecb have been doing – and what needs to be done in other key domains of european economic policy. the june 2012 summit was so important because in times of great uncertainty it provided a clear vision of what is necessary for a stable and genuine economic and monetary union. much of it is being implemented. and i am confident that the project for europe will continue bis central bankers ’ speeches to evolve towards renewed economic strength and social cohesion based on mutual trust, both within and across national borders, and above all stability. thank you very much for your attention. bis central bankers ’ speeches

ago, its benefits have been widely acknowledged. the glut of liquidity in core economies has been partly reabsorbed, as deposits and savings have returned to the periphery. interest rates in germany have increased and they have fallen in the periphery. target balances, a powerful summary indicator of fragmentation, have come down by one quarter from their peak last year. funding costs in the countries under stress have fallen substantially. both banks and firms in stressed countries have been able to regain access to market financing, both for funding and raising capital. our initiative has therefore been beneficial to all : banks, companies and households – and it has benefited both periphery and core countries. let me highlight a few features of omt that are essential to bear in mind. first, omt comes with strict and effective conditionality attached to a programme with the european stability mechanism ( esm ). the initiative is activated only if a country submits to policy conditionality that leads to policy reforms. governments are not presented with a choice between reforms or omt. omt comes only with reforms. and reforms need a disciplined process of monitoring and international surveillance for the country concerned. otherwise, there is no omt activation. second, conditionality enhances the independence and the effectiveness of our monetary policy. the reason is that conditionality is a necessary but not sufficient condition to activate omt. we would only act if the right conditions for effective use of this monetary policy instrument were in place. third, the ecb would not act to compress spreads artificially ; on the contrary, we believe that spreads should naturally reflect the underlying fiscal position of the sovereign and the economic prospects of the country. this is also why we emphasised that a sovereign needs to have market access to qualify for omt. fourth, omt does not entail a transfer of risks from periphery to core countries via the ecb ’ s balance sheet, over and beyond risks that are inevitable and inherent in the implementation of a single monetary policy for 17 sovereign states. the omt announcement has lowered risks for core countries : the risks of a euro area breakup ; the risks arising from target balances in such a scenario ; and the risks from market interest rates distorted by safe - haven flows. bis central bankers ’ speeches because of omt, the euro area is a more stable and resilient place to invest in than it was a year ago. indeed, i would say that omt is even more essential now as we see potential changes