In the SSM area, large global banks are now subject to a single supervisor, associating the ECB with national supervisors in JSTs, as is also the case for their local foreign subsidiaries. The euro area banks have been subjected to wide-ranging and harmonised supervisory exercises. Stress testing exercises that apply a common methodology and common quality assurance have been performed every two years since 2011 under the aegis of the EBA. A transparency exercise is run every year by the EBA, generating lots of data on European banks. Publicly disclosed asset quality reviews and comprehensive assessments have been performed each time a bank is put under the direct supervision of the SSM since 2014. A large review of the internal models used by the European banks (Targeted Review of Internal Models, or TRIM) is currently performed by the ECB and aims at greater reliability and comparability of risk models and capital. In sum, we have set up a regulatory framework in Europe that penalises unnecessarily complex banking activities by imposing higher capital requirements, allowing for more intrusive and 2/3  BIS central bankers' speeches  comprehensive supervision and fostering greater transparency. The new resolution mechanism aims at extinguishing the implicit government guarantees, which provide an incentive for excessive risk taking and levels of complexity in order to gain “too-big-to-fail” status. C – Some challenges lie ahead: better coordination of the parties involved in the resolution process and the necessity for cross-border consolidations in Europe But we still face important challenges ahead.
I want to stress two of them. The Single Resolution Mechanism, the second pillar of the Banking Union, has just successfully passed its first real test this summer with the orderly resolution of Banco Popular. However, there is still room for improvement in the coordination between the numerous institutions and authorities involved in these procedures. It means that every participant must know and very clearly understand its role in the process to ensure an efficient resolution. Second, Europe still suffers from overcapacity and cross-border consolidation is needed. In the United States, the top five banks have a market share of more than 40% while this figure is barely 20% in Europe. Given the new regulatory and supervisory framework I described earlier, we believe that the Banking Union should be considered – according to the criteria set up by the BCSB – as a single geographic area. Furthermore, we are reaching the point in Europe where facilitating healthy and well-designed cross-border mergers could actually improve financial stability. It would make banks better able to diversify their risks, achieve economies of scale and become more efficient. And as we have strengthened the single supervision and resolution of significant institutions, we should not fear the “too-big-to-fail” issue. Cross border consolidation would foster a more efficient allocation of savings towards productive investments in Europe and it would place European banks in a better position in terms of international competition.