If we knew that “banks in the periphery will not face severe problems” or if we knew that “the recapitalisation needs will be a double digit bn figure” we could spare the effort in conducting this exercise. All these statements are mere speculation. The comprehensive assessment is an extraordinary opportunity to rebuild confidence in the banking sector and promote the long overdue repair of bank balance sheets, which in turn is a precondition for a sustainable economic recovery. One particular point needs to be stressed: credible national backstops must be put in place. If not, the credibility of the whole exercise is put at risk as the outcome will then almost certainly be negatively perceived by market participants. Doing this balance sheet assessment without a backstop in place would be a bit like getting on a boat in rough weather conditions, and not taking a life jacket on board. Any recapitalisation needs uncovered by the exercise should of course first and foremost be covered by the market. National budgets and national resolution funds may intervene as a second line. Finally, a European backstop, the ESM with its existing instruments, meaning a banking sector programme like in the case of Spain, may be available. The second key element of a banking union is the Single Resolution Mechanism, a European equivalent to the Federal Deposit Insurance Corporation. The crisis has shown that simple coordination among Member States has been inadequate to organise the resolution of crossborder banks in an efficient, quick and least-cost manner.
There should be a clear division of labour between supervision and resolution. The fourth and last big open issue is how to finance the backstop for the single resolution fund as long as it is not sufficiently funded via levies from the banking sector. As mentioned before, I think the ESM including any non euro-area member states could provide a credit line to the resolution fund. That would guarantee a clear control over the resolution fund by the participating member states and their parliaments. A functioning banking union is in the best interest of Europe and it is in the best interest of Germany. BIS central bankers’ speeches  7