16 See Krozner, R. and Strahan, P. (2014), “ Regulation and Deregulation of the U.S. Banking Industry: Causes,  Consequences, and Implications for the Future", in Economic Regulation and Its Reform: What Have We Learned?, National Bureau of Economic Research. 17 See Morgan, P., Rime, B. and Strahan, P. (2004), “Bank Integration and State Business Cycles”, The Quarterly  Journal of Economics, Vol. 119, Issue 4, 18 European Commission estimates. See Nikolov, P. (2016), op. cit. 19 See Milano, V. and Reichlin, P. (2017), “Risk-sharing across the US and EMU: the Role of Public Institutions”,  Policy Brief, LUISS School of Political Economy. 20 Tier 1 capital to total assets. 21 ECB (2018), “Box A: What could enhance private financial risk sharing in the euro area?”, Financial Integration in  Europe. 22 For a more detailed explanation, see ECB (2017), “Special feature: Cross-border bank consolidation in the euro  area”, in Financial Integration in Europe. 23 See Carmassi, J. et al. (2018), “Completing the Banking Union with a European Deposit Insurance Scheme:  who is afraid of cross-subsidisation?”, Occasional Paper Series, No 208, ECB. 24 This includes guaranteeing the assets or the liabilities of the institution under resolution; making loans to or  purchasing assets from the institution under resolution; and making contributions to a bridge institution and an asset management vehicle. See srb.europa.eu/en/content/single-resolution-fund. 25 Sapir, A. and Wolff, G. (2013), “ The neglected side of banking union: reshaping Europe’s financial system”, note  presented at the informal ECOFIN on 14 September 2013, Vilnius.

At the national level, structural reforms therefore remain a priority. We know that structural reforms boost growth: looking at the last 15 to 20 years, euro area countries with sound economic structures at the outset have shown much higher long-term real growth. And we know that they help countries recover more quickly from shocks, which prevents recessions from leaving lasting scars.29 That said, while sound domestic policies are key to protect countries from market pressure, the 6/9  BIS central bankers' speeches  crisis showed that, in certain conditions, they may not be enough. Markets tend to be procyclical and can penalise sovereigns that are perceived to be vulnerable, over and above what may be needed to restore a sustainable fiscal path. And this overshooting can harm growth and ultimately worsen fiscal sustainability. This creates a need for some form of common stabilisation function to prevent countries from diverging too much during crises, as has already been acknowledged with the creation of two European facilities to tackle bad equilibria. One is the ECB’s OMTs, which can be used when there is a threat to euro area price stability and comes with an ESM programme. The other is the ESM itself. But the conditionality attached to its programmes in general also implies procyclical fiscal tightening. So, we need an additional fiscal instrument to maintain convergence during large shocks, without having to over-burden monetary policy. Its aim would be to provide an extra layer of stabilisation, thereby reinforcing confidence in national policies.