The models used to assess risk in the more novel areas of finance are, by definition, less grounded in experience and less valuable in anticipating how prices and correlations change in conditions of stress. Consensus on the appropriate accounting treatment is less well established. With the dramatic increase in the scope of operations of the major financial institutions, the challenge of pulling together an integrated risk management framework that captures exposures across the entirety of the firm is much greater. The potential for conflicts of interest and opportunities for fraud are greater, placing significant burdens on internal compliance regimes. The changes in regulation and technology that have increased the opportunities for risk transfer mean that more risk may end up in parts of the financial system where supervision and disclosure is weaker and in parts of the economy less well able to manage it. And finally, we have seen substantial growth in the integration of national financial systems. Indeed, a number of foreign and foreign-owned banking organizations are among the largest financial institutions in the U.S., with operations here that run into the hundreds of billions of dollars, and in some cases representing the majority of their global assets. The major U.S. banks and investment banks are more global in the scope of their operations, and their affiliates are a major presence in many of the countries in which they operate, in some cases with a larger share of financial activity than they have in the U.S. market.
For money to be truly one, it has to be truly fungible independent of its form and independent of its location. In particular, deposits, which are the most widespread form of money, have to inspire the same level of confidence wherever they are located. To ensure that deposits are truly as safe everywhere across the euro area, the likelihood that a bank fails has to be independent of the jurisdiction where it is established. Resolution has to follow the same process in the event that a bank fails. And, when push comes to shove, depositors must be afforded similar protection wherever they are located. Fundamentally, this was and remains the agenda of Banking Union. And it is why Banking Union was conceived with three pillars: a single supervisory mechanism, a single resolution mechanism, and a uniform deposit insurance scheme, which remains to be specified. For money to be truly one, we need all three. Supervision had to come first, not because it was the easiest to establish, but because it was the necessary condition to proceed with the other pillars of Banking Union. That the SSM was established at the ECB owes much to circumstances. There are benefits in the current set-up, but that was not of vital importance. What was of absolutely vital importance, however, is that the SSM was established. In a fiat money system with fractional reserves, sound and uniform supervision is essential to there being a sound and single money.