However, the task is complex and banking supervision in itself is too important to present solutions under time pressure that will not work in practice. We should therefore take the time it takes to get it right. Financial stability and monetary policy Having reviewed the additional tasks that central banks are asked to take over, a question regards the implications for the practice of monetary policy. I will hence explain in the following how the two responsibilities will complement each other. The crisis has clearly demonstrated how essential financial stability is for the effective conduct of monetary policy. Financial market developments have always been an integral part of our monetary policy considerations and have influenced the design of our non-standard measures. Nonetheless, in my view and looking forward, monetary analysis and financial market analysis should play an even greater role for the conduct of monetary policy – particularly with regard to financial imbalances and financial fragilities. Here I would see three main areas in which further work is needed to incorporate the lessons from the crisis. First, we are faced with the fact that the smooth functioning of the financial sector is key for macroeconomic outcomes and monetary policy transmission. We saw that adverse financial conditions can have strong and impairing effects on the effectiveness of monetary policy. Academia and central banks have already taken up this research agenda and  BIS central bankers’ speeches  7  macroeconomic models and monetary policy assessments are refined in that regard.
As part of the Financing Union, completing the Banking Union Allow me now to dwell for a moment on the third area of progress, which is also my third concentric circle: completing the Banking Union. The Banking Union is a major step forward for the euro area and is now operational, based on the single rulebook and – already – two pillars: the Single Supervisory Mechanism (SSM) since end-2014; and the Single Resolution Mechanism (SRM) since the beginning of 2016. Those two pillars will have to be complemented by a third pillar: Deposit Insurance, where we could find practical and reasonable compromises. But there are two additional challenges that are less often mentioned: consistency, and consolidations. The first challenge in order to complete the Banking Union is to achieve better consistency between regulation, supervision and resolution, at three levels: First, in the concrete mechanisms: finalising and simplifying the resolution pillar should be a priority. The case of the Italian banks has illustrated just how complex it is to combine the resolution regime laid down in the Bank Recovery and Resolution Directive (BRRD) with the State aid framework for orderly liquidation. In addition, confidence in the Single Resolution Fund (SRF) and its capacity to intervene has to be bolstered. The setting-up of a common backstop, as mentioned in the European Commission’s communication of 11 October, is a promising avenue, which could take the form of a credit line granted by the ESM.