banking industry may be reducing the supply of credit to small business, since larger banking institutions tend to devote smaller proportions of their assets to small business lending. solid economic research applying modern econometric techniques to accurate data is needed to evaluate such claims and to determine the likely effects of policy actions in order to improve future policy decisions. the importance of the bank - small business relationship according to our survey information, commercial banks are the single most important source of external credit to small firms. small businesses rely on banks not just for a reliable supply of credit, but for transactions and deposit services as well. because of their needs for banking services on both the asset and liability sides of their balance sheets, small businesses typically enter into relationships with nearby banks. the data show, for example, that 85 percent of small businesses use the services of a commercial bank within 30 miles of their firm, and that small businesses typically obtain multiple different services from their local bank. the 30 miles actually overstates the distance that small businesses are willing to travel for most of their basic financial services. for example, the median distances from a small business ’ offices to the institutions where it obtains deposit, credit, or financial management services are all 5 miles or less. one of the reasons why the banking relationship is so important to small business finance is that banks can efficiently gain valuable information on a small business over the course of their relationship, and then use this information to help make pricing and credit decisions. the financial conditions of small firms are usually rather opaque to investors, and the costs of issuing securities directly to the public are prohibitive for most small firms. thus, without financial intermediaries like banks it would simply be too costly for most investors to learn the information needed to provide the credit, and too costly for the small firm to issue the credit itself. banks, performing the classic functions of financial intermediaries, solve these problems by producing information about borrowers and monitoring them over time, by setting loan contract terms to improve borrower incentives, by renegotiating the terms if and when the borrower is in financial difficulty, and by diversifying the risks across many small business credits. some recent empirical research suggests that this characterization of the bank - small business borrower relationship is accurate. for example, as the relationship matures, banks typically reduce the interest rates charged and often drop the collateral requirements on small business loans. in short, the bank - borrower relationship appears to be an efficient means for overcoming information and cost

intense work was needed to implement the new supervisory system. milestones included the completion of the single supervisory mechanism regulation in october 2013 ; the approval of another regulation assigning responsibilities to the european central bank and national authorities ; and the drafting of a supervisory manual setting out the best supervisory practices of each country and implementing common procedures for all members of the system. one of the main objectives of the new institutional design is to ensure that the ecb ’ s supervisory functions do not clash with its monetary policy responsibilities. to this end, a new supervisory board was set up in the ecb to plan and conduct banking supervision. this board will be responsible for making proposals on supervision to the governing council, which continues to be the highest decision - making body of the ecb in both monetary policy and supervision. the start - up of the ssm constitutes an unprecedented transformation of the responsibilities of the participating national supervisory authorities, which naturally include the banco de espana. the single supervisory mechanism regulation distinguishes two groups of banks. first, the 120 banks considered to be significant, 15 of which are spanish ( although their number will drop to 14 when the acquisition of catalunya banc by bbva is completed ). they will be directly supervised by the ecb through so - called joint supervisory teams made up of staff from the ecb and the national supervisors. second, the more than 3, 000 less significant banks will continue to be the direct responsibility of national authorities, although the ecb will indirectly monitor their situation and the supervisory actions to which they are subject. as a prior step to the creation of the ssm, a comprehensive assessment of the euro area ’ s significant banks was conducted and the results were made public on 26 october. this exercise consisted of two parts : an asset quality review and a stress test. the assessment of asset quality involved an in - depth review of bank balance sheets as at end - 2013. it was carried out with the assistance of the top audit firms. the stress tests assessed the capacity of banks, in a three - year period from 2014 to 2016, to absorb losses under two hypothetical macroeconomic scenarios : a baseline, more likely one ; and an adverse one, less likely but not impossible. this second phase of the exercise was basically carried out by the banks themselves. both phases were subject to strict quality assurance in which the national supervisory authorities, in our case the banco de espana, played a key role. the exercise considered minimum capital thresholds which had to be exceeded in each of