François Villeroy de Galhau: Financial supervision and the role of national authorities in Europe Opening address by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Autorité de contrôle prudentiel et de resolution (ACPR) Conference on Financial Supervision, Paris, 18 September 2018. * * * Mr. President [M. Draghi], Ms. Chair [D. Nouy], Mesdames, Messieurs,  Bonjour et bienvenue à Paris, It is a particular pleasure to welcome you to this conference on financial supervision and the role of national authorities in Europe. What better way to inaugurate the new headquarters of the ACPR – France’s supervision authority – than to bring in colleagues and experts from across the continent. I urge you to look at a few street names in the neighbourhood: this borough is called in Paris “quartier de l’Europe” – very much in the spirit of what we are doing together at the SSM. I warmly thank President Mario Draghi for being here. Before giving him the floor, let me stress that we all have reasons to be proud of what has been achieved for Banking Union in the past few years. But we must not be complacent. There are two priorities: one in substance, and one in method. **  I. Our priority in substance: strengthening the second pillar on resolution Now that we’ve had the Single Supervisory Mechanism up and running for four years, it’s easy to forget that there were many sceptics who were sure that such a union could not be achieved.
The US had a trusted process through the Federal Deposit Insurance Corporation, backed by a credit line from the US Treasury. By contrast, prior to the crisis many member states of the euro area did not even have a national resolution framework. Since 2008, the FDIC has resolved over 500, mostly smaller banks in the United States. While determining the exact definition is tricky in the euro area, the number appears less than a hundred.1 All this explains why the recovery of the banking sector took longer in the euro area, which our monetary policy had to work to mitigate. And what is more, when public authorities in the euro area did intervene to backstop their national banking sectors, the fiscal implications naturally differed: the onus fell entirely on national budgets. This in turn contributed to the second area where the euro area and the US diverged: the emergence of the so-called “vicious loop” between banks and sovereigns, which further delayed the financial repair process. Importantly, this vicious loop not only further impaired monetary transmission, but it also had implications for the stance of monetary policy. The need for accelerated fiscal consolidation to quell the sovereign debt crisis constrained the ability of fiscal to carry out macroeconomic stabilisation in the euro area and hence the overall policy-mix. Whereas the US could consolidate its budget against the backdrop of a firming recovery, some euro area governments were forced into a pro-cyclical fiscal stance. That in turn worsened the macroeconomic environment in which monetary policy had to operate.