The way forward: moving towards an integrated financial market union As I mentioned already, while monetary policy can alleviate deleveraging pressures in crisis times, it cannot address their root causes. In fact, to tackle the underlying problems, a wide-ranging policy response is necessary, inter alia, pertaining to public finances, economic competitiveness and the financial sector. Given the focus of today’s conference, I would like to use the remainder of my speech to consider the last aspect, namely the institutional framework that governs financial markets in European Monetary Union (EMU). In particular, I would like to address two questions: first, what principles should the institutional architecture be based on in order to be effective in avoiding excessive risk-taking and cross-border fragmentation of banking sectors; and second, how do the on-going reform efforts towards a “financial market union” at European level contribute to these aims? In answering the first question, policy-makers should be guided by two criteria: first, economic actors that stand to gain from risky activity should also bear the associated downside risk. To be concrete, a system, in which banks can expect to be bailed out by taxpayers if their investment decisions go wrong, is neither efficient not fair. Second, the  BIS central bankers’ speeches  5  institutional architecture of EMU should achieve a level of integration that is commensurate to the integration of its banking financial sectors. Hence, there should be no systematic cross-country differences in the design and implementation of the rules that govern financial markets.

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