The single supervisory mechanism has been defined as an integrated system of surveillance of financial institutions under the clear leadership of the ECB, which in turn benefits from the supervisory experience of the competent national authorities. Specifically, the ECB assumes all the relevant powers in respect of the supervision of credit institutions, and exercises them through decision-making arrangements centralised in a Supervisory Board on which both the ECB and the national supervisory authorities sit. The latter contribute, according to the Regulation, to the preparation and application of the decisions taken in a centralised fashion. The work of the national authorities will be channelled through what are known as the Joint Supervision Teams. These teams, which will regularly monitor each institution, will be made up of supervisory staff from the ECB and from the national authorities. Regular on-site inspections will, as a general rule, be conducted by the national authorities, following centrally set mandates and arrangements. As you can imagine, the work ahead over the coming months will be very intense. Having to assume supervisory powers in scarcely one year will make great demands in terms of organisation. Specifically, several groups made up of staff from the ECB and the national authorities have been set up in Frankfurt and are pushing ahead with the extensive groundwork.
This fragmentation has quite considerable consequences in terms of differences in the borrowing costs for households and firms according to their geographical location, which reflects the deficient functioning of the common monetary policy transmission mechanism and leads to highly destabilising imbalances between countries. This is why the banking union – whose aim is none other than to ensure the disappearance of the country-risk component of banking liabilities – has been seen as essential to ensure the stability of the  BIS central bankers’ speeches  1  monetary union, radically altering the European authorities’ set of priorities. What is today a reasonably well-defined project was but a short time ago a mere concept in the minds only of the most visionary pro-Europeans. Single supervisory mechanism The first step towards creating the banking union is the start-up of a single supervisory mechanism, the Regulation for which has recently been approved. We cannot overstate the importance of this milestone: according to the Regulation, in less than one year the financial system of the euro area countries – and of the other EU countries that should decide to join – will come to be supervised by the single mechanism set up within the European Central Bank. In particular, significant banks – which account for 80% of the sector – will be directly overseen by the new European supervisory authority.