Small and medium-sized enterprises without direct access to capital markets, in particular, may benefit the most from defragmentation. Second, for the ECB, a re-integrated banking sector will ease the transmission of monetary policy impulses and thus enhance the effectiveness of monetary policy. 5  See Mongelli, “The mutating euro area crisis – Is the balance between “sceptics” and “advocates” shifting?”, Occasional Paper Series, No 144, ECB, Frankfurt am Main, February 2013. 6  See Draghi, “Financial integration and banking union”, speech delivered at the conference for the 20th anniversary of the establishment of the European Monetary Institute, Brussels, 12 February 2014. BIS central bankers’ speeches  3  Third, in several monetary unions, genuine financial market integration helps smooth out the effects of asymmetric shocks. This mechanism of risk sharing can operate through income insurance, for example, when a country’s residents hold claims to dividends, interest or rental income from investments in other countries. 7 In the US this form of risk-sharing has been shown to be more important than federal budget transfers. In the euro area, such risk sharing will need to assume an increasingly more important role, especially given the absence of a more significant central budget. 8 On the other hand, incomplete financial integration carries significant risks. As the crisis has demonstrated, financial integration increased the risk of contagion, without in parallel generating adequate risk-sharing arrangements to offset its adverse effects. For example, increased cross-border interbank funding was not accompanied by a sufficient diversification of investment risks.

That said, the studies that do exist tentatively support the conclusion that macro-prudential policy can be effective in the euro area. Assetside measures like LTV, LTI and DTI in particular have been found to be effective in dampening real estate booms. 10 As this was the sector at the heart of the crisis in several euro area countries, this is encouraging. Further research in this area is essential to help us better understand the impact and transmission channels of macro-prudential policies. Questions of effectiveness aside, where the SSM represents a major step forward in macroprudential policy, is in creating some centralisation of macro-prudential decision-making. The SSM Regulation gives the ECB the power to apply stricter macro-prudential measures than national authorities if it deems necessary. This allows us to take an integrated view of macroprudential policy – spillovers, arbitrage effects – and provides a safeguard against inaction bias at the national level. Moreover, the important role of the ECB Governing Council in macro-prudential decisionmaking allows for interactions between monetary policy and macro-prudential policy to be internalised and synergies to be exploited. To give just one example, several of the nonstandard measures we have adopted during the crisis, such as changes in collateral haircuts or reserve requirements, might in certain cases overlap with macro-prudential measures like liquidity ratios and margin requirements. This suggests that macro-prudential policies can support us in fulfilling our mandate. Conclusion Let me conclude. Since the launch of the euro, we have become more interconnected.