The new rules contain sufficient flexibility to deal with exceptional situations where public money may be required to ensure financial stability. Second, public risk sharing. A certain level of public risk sharing is necessary to create confidence in the overall financial system. Even wellcapitalised banks can fall victim to runs and contagion. This is why central banks act as lender of last resort and fiscal backstops should be in place to ensure trust in the stability of the financial sector. In the Banking Union, both supervisory responsibility and the fiscal backstop need to be at European level, to underpin durably confidence in the area-wide financial system. Just as necessary is the establishment of a European Deposit Insurance System (EDIS). The current situation, where supervision is common, but the consequences of potential bank failures are still predominantly national, should not last. In such an incomplete framework, national considerations inevitably continue to affect supervisory decisions. This is not without consequences for the incentives for banks to become more European. Concrete examples include a lack of fungibility of liquidity or capital. The fact that the euro area is not considered as a single jurisdiction may result in applying higher capital buffers to euro area G-SIBs. While the institutional underpinnings of the Banking Union do not yet meet the requirements of a genuine single financial market, the creation of the SSM has been a leap forward in the establishment of a coherent regulatory framework.

Therefore listed companies will have an incentive to adjust their risk profile and avoid more hazardous - which may also be more innovative - investment projects. Therefore, “entrepeneurship” may be curbed and the growth potential may be influenced adversely. Another impact of volatility on financial management is related to recourse to hedging, namely derivative products. As I mentioned earlier, derivatives are a driving force behind mature financial markets, and their strong development in the last two decades is merely consequence of the benefits they have generated. More precisely, derivatives and related financial innovations have enabled companies to transfer the impact of interest rate and currency fluctuations to financial institutions or investors that were ready to manage it, whereby facilitating international trade or project financing. Meanwhile, the pricing of derivatives is closely linked to volatility. As volatility is indeed difficult to predict, market practitioners have developed models, which are constantly being refined. Over time, market participants, - especially banks, - have become more competent in managing risk, while being left that residual risks which are more complex and harder to control. These consequences would not be a major concern, if the episodes of excessive volatility were only accidental. Peaks of volatility clearly reflect macroeconomic imbalances, as soon as market participants take into account the relevant information. This has been evidenced in studies reviewing factors behind currency crises in emerging countries. Macro data - such as balance of payment or 13 fiscal policy indicators - prove to be discriminant-leading indicators from this point of view.