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.
Important progress is also being made at the operational and business levels. The most notable example mentioned by many today is T2S, a project with huge potential for market integration. T2S will enable the participating CSDs to focus on value-added services while the basic settlement service is provided via the single T2S platform. T2S will thereby make it easier for business to move from one CSD to another. The actors that harmonise in T2S have a greater chance of reaping the full benefits of T2S and widening their business. Conversely, the European CSDs that do not harmonise may see the securities issued via their CSD being settled predominantly in another CSD participating in T2S. An area of opportunities mentioned several times by speakers today is collateral management. Some of the regulatory initiatives I mentioned before, aiming to enhance safety in financial markets, are generating greater demand for high-quality collateral. At the same time, the crisis is making this collateral scarcer: there has been a shift from unsecured to secured funding and greater recourse to central bank liquidity. The increased demand for collateral is prompting market participants as well as the Eurosystem to develop innovative ways to make better use of existing collateral, i.e. to make assets more easily available, when and where they are needed. Harmonisation in this area is crucial to facilitate the efficient mobilisation of collateral across Europe. Examples are the auto-collateralisation functionality that will be offered by the T2S platform and the several initiatives underway to establish tri-party settlement interoperability.