bundesbank is giving the ecb every possible support in the process of setting up the ssm, not least by providing experienced staff. in addition, the bundesbank will bring its experience to the table through the joint supervisory teams coordinated by ecb staff. and it will continue to play a major role in the supervision of smaller financial institutions. to build the banking union on solid foundations and avoid shaking confidence in the ecb, a “ balance sheet assessment ” will be carried out before the ssm is launched. this will be rather like a doctor ’ s check - up. and that brings us back to the problem of legacy assets. as you may recall, this issue has been part of the banking union debate right from the start. the balance sheet assessment will screen the balance sheets of the around 130 significant institutions which will fall under the ecb ’ s direct supervisory remit. the aim is to ensure that these banks ’ finances are sound before the ssm is launched so that they are not found to have major write - down needs just after the ssm has started its work. that would be a heavy political burden for the ssm to bear – especially if banks then had to be recapitalised or restructured following such write - downs. precisely because this balance sheet assessment could uncover some inconvenient truths for the current national supervisors, it is important to ensure that it is carried out correctly, competently and consistently. that is why we should also draw on external expertise – by enlisting the help of external auditors, for example. if the assessment reveals that banks need to be recapitalised, this should be achieved as far as possible via the capital market. if this isn ’ t possible, the next step is to establish whether the bank actually has a sustainable business model at all or whether it needs to be resolved. only if the bank cannot be resolved because of a threat to financial stability will it be recapitalised by its home country. the esm will only be involved in exceptional cases ; then, banks will not be recapitalised directly but via a loan to their home country. at this point, i ’ d like to emphasise one key overarching concept : taxpayers should not have to prop up banks which have unsustainable business models. setting up the ssm offers us the opportunity to subject bank balance sheets to strict scrutiny. we must not let this chance slip through our fingers. otherwise, we could jeopa

, and so on. accordingly, we need to keep updating our understanding of the economy in real time. that is why we say that the outlook for inflation, and therefore monetary policy, is particularly data dependent right now. the meaning of data dependence what does it mean, in practical terms, to say that monetary policy is “ data dependent ”? after all, central banks always depend on data to measure their economy ’ s progress relative to expectations. what i mean in this context is that in a period of heightened uncertainty about how the economy is evolving and the implications for inflation, we need to pay very close attention to all the information we receive, including data, sentiment indicators and intelligence, and make continuous inferences about not just how the economy is evolving, but how its behaviour may be changing. let me give you four examples of the issues we will be monitoring. the first, and most important, is the evolution of economic capacity. i said that our version of “ home ” is at the intersection of full capacity and 2 per cent inflation. but full capacity can be a moving target. this is because when companies increase investment, they augment their capacity to produce through some combination of raising their productivity and increasing their workforce. this is a welcome development because, as the economy approaches full capacity, investment spending can have the effect of pushing out those capacity limits, giving the economy more room to grow in a non - inflationary way. in short, this is something worth encouraging. to some extent, this happens at this point in every economic cycle, but the protracted cycle we have been through makes this issue particularly relevant this time around. a second issue is the question of inflation and technology. some economists have cited technology as contributing to the weakness in global inflation. the digital economy may be allowing goods and services to be produced and delivered more efficiently, helping to keep prices down. we may also be seeing stronger competition through e - commerce, which affects how retailers set prices. it is worth emphasizing that this type of disinflation increases everybody ’ s purchasing power and therefore is also a positive development. the bank would want to estimate the impact of technological developments on trend inflation and, assuming the impact was temporary, see through it, provided that inflation expectations remained well anchored. there is a lot more work to be done to understand both the size and persistence of these effects. a third issue is wage growth, which has been slower than would be expected in an economy that is approaching full output.