as capital and liquidity, be located? should each local subsidiary of the banking group hold a minimum of liquid assets, irrespective of whether they are needed for its business model? or is it sufficient to fulfil liquidity requirements at the consolidated level? centralised liquidity management at group level seems clearly beneficial from the perspective of financial integration. however, there are also risks associated with closer integration in the banking union. as supervisor, the ecb can grant waivers for liquidity requirements at national as well as crossborder level on a case - by - case basis. while the creation of a truly european banking system is certainly in the ecb ’ s interest, its supervisory mandate calls, above all, for the safety and soundness of the institutions under its supervision. waiving liquidity requirements and large exposure limits could increase the interconnectedness within the banking group and lead to possible contagion effects4 in a banking union which has no common deposit insurance scheme and where the single resolution fund ( srf ) still lacks a fiscal backstop. the current incomplete banking union is asymmetric : while decisions on liquidity waivers are taken at european level, the relevant risk - sharing mechanisms are still national. in each country, bank depositors are protected by the national guarantee scheme. if a bank fails and the single resolution fund does not have sufficient resources available to finance its resolution, which may well be the case for some time, until the common element of the srf is sufficiently advanced, it is a national credit line that backs the srf. in this context, the ecb ’ s supervisory board decided this spring that there should always be a floor on the liquidity coverage ratio for those subsidiaries 3 / 5 bis central bankers'speeches that are significant on a stand - alone basis. this is to ensure that they hold a sufficient level of high - quality liquid assets to respond to liquidity needs at national level. 5 liquidity ring - fencing reflects the absence of a common fiscal backstop in the banking union. completing the banking union it would be unfair not to acknowledge the progress that we have made towards the banking union. my main point is that we have to be more ambitious. completing the union is not a longterm project. if the aim is to foster cross - border integration of banks, finalising the union has to be done within a timeframe that banks can work with when they make their strategic decisions on how to adjust their business models. in the

evolving views about the prospective standing of sovereign issuers ’ credit. with this in mind, let me turn now to the challenge of calibrating the size and duration of purchases that can deliver that yield constellation and, indirectly, the set of financing conditions consistent with our objective. for this, we rely on the current theory and empirics of quantitative interventions by central banks. the theory available today stipulates that it is primarily by announcing that the central bank will withdraw a certain stock of long - term bonds at a certain horizon, and thus a share of duration risk that otherwise would have to be borne by the market, that an asset purchase programme can impact on the term premium and on the yield curve in general. it is important to emphasise that it is the amount of duration that we extract relative to the amount of duration that otherwise would be in the market that produces the impact. in this respect, keeping the size of the app portfolio constant at a certain nominal level does not necessarily safeguard a given amount of accommodation. by keeping the portfolio of assets acquired under the app constant in nominal terms, it is difficult to prevent the ageing of the portfolio, i. e. its 4 / 6 bis central bankers'speeches gradual loss of duration as the securities held in the portfolio mature. although re - investments of the proceeds from principal payments of the maturing securities can, to a certain extent, offset this endogenous decay of the average portfolio duration – by replacing short - term expiring securities with the purchase of longer - term securities – this substitution effect is generally not strong enough to maintain the average maturity of the portfolio relative to that of the market portfolio at a level consistent with a given amount of accommodation. in addition, of course, the amount of duration that is supplied to the market by public and private issuers is not constant and indeed typically trends up. thus, keeping the central bank portfolio steady at a certain nominal level means that, in relative terms, the fraction of duration risk that is withdrawn from the market tends to fall. as time passes, the endogenous loss of duration in the central bank portfolio is bound to exert increasing upward pressure on the term premium. when the governing council will eventually judge that the transition to a sustained adjustment is likely to be completed within a medium term horizon with a sufficiently high degree of confidence, this endogenous process will act as a self - correction mechanism. in those conditions, the higher expected returns on business investment will make borrowing