A polycentric system of this nature can function, as illustrated by the United States: New York’s financial centre is favoured by corporate and investment banks, Chicago’s financial centre handles futures, while Boston specialises in asset management. Starting with the Banking Union, its success depends on the completion of a robust resolution mechanism, probably even more than a full common deposit insurance scheme. Regarding the backstop of the Single Resolution Fund, in the interests of financial stability, we should consider 1/3  BIS central bankers' speeches  extending the maturities on the credit lines. But we will not achieve an effective and profitable Banking Union without cross-border consolidation in Europe: there are still too many roadblocks and not enough cross-border restructuring. Compared to the US market, the European banking sector remains fragmented: the market share of the top 5 European banks amounts to 20%, compared to more than 40% in the US. So we should aim to create a “single banking market”, as recently proposed by Annegret Kramp-Karrenbauer, where genuine pan European banking groups could operate more effectively and better face foreign competition. On top of that, banking integration makes banks more resilient as it reduces their exposure to asymmetric shocks which leads to enhanced risk-sharing and a better allocation of resources. A useful step towards forming genuine pan-European banking groups could be to lower capital requirements of European subsidiaries, while safeguarding their financial position through credible cross-border guarantees provided by the parent company, which could be triggered both in normal times and in crisis situations.

One difficult question recently has concerned the rapid increases in house prices. These have risen at an annual rate of around ten per cent in recent years (Figure 8). Households have been taking on new loans at almost an equally rapid rate. There are several reasonable explanations as to why house prices have been rising so much for some time. For instance, there have been relatively few new homes built over the past decade. The high productivity growth may also have meant that households expect a more favourable development in income in the long term, compared with before and therefore take on more debts and buy homes. Furthermore, the credit markets are not as regulated as they were before. Together with the expansive monetary policy, this has contributed to high credit volumes in the economy. However, one cannot rule out the possibility that there are also exaggerated elements in this development and that expectations have become unrealistic as to how house prices will develop in future. One contributing factor could be that the interest rate in this economic cycle has been cut to a historically low level and this has led to exaggerated optimism regarding interest rates. Bond rates have also fallen to historically low levels both in Sweden and in many other countries. This could have further fuelled the optimism regarding interest rates. Of course, it is not easy to know whether these are important mechanisms or what can be considered a reasonable interest rate level in the long term.