6  BIS central bankers’ speeches  study of the impact of competition policy on TFP in twelve OECD countries found a positive and signiﬁcant effect.18 So far, catching-up economies have made notable reforms of framework conditions that increase competition, for example by strengthening competition authorities, reducing administrative burdens on companies, softening authorisation requirements and ensuring a fair public procurement process. However, progress in reducing excessive rents in sheltered goods and services markets has been less impressive, especially in network industries such as energy, telecommunications and transport. This is partly due to the micro- or sectorspecific dimension of the reform needs, which imply confronting vested interests inside a certain sector. Reforms in these sectors are key, not only because they support reallocation, but also because they immediately increase the competitiveness of the tradable sector by reducing often onerous input costs. This could in turn strengthen incentives to raise TFP as the gains would no longer have to be shared with suppliers of intermediate inputs. Reallocation of capital needs of course to be accompanied by reallocation of labour, and here price signals are also important. For example, there is some evidence that slower ULC adjustment in the non-tradable/services sectors in catching-up economies is discouraging labour from moving to the tradable sector, as wages remain higher in the former. Addressing this distortion across sectors is the rationale for labour market reforms that strengthen the link between wage formation and economic conditions. Reforms in this area are now welladvanced.

If such losses were still to erode a bank’s capital, the new EU resolution framework will ensure, first, that the costs of bank failure fall mainly on the private sector rather sovereigns, and second, that they are spread evenly across the euro area banking sector rather than concentrated in the affected countries. The relevant innovations here are the minimum requirements for bail-in before sovereign interventions, and the creation of the Single Resolution Fund for all banks that participate in the SSM. That said, in my view achieving high quality financial integration must also involve deepening capital markets in Europe, both to improve the possibilities for market-based debt and equity financing, and to provide further channels for private risk-sharing. This obviously goes beyond Banking Union and will not be straight-forward, as it concerns multiple aspects of national law. But there are practical ways in which progress could be made. To give just one example, a Securities Law Directive has not been proposed to date, although it was already recommended in the second report by the Giovannini Group more than ten years ago (in 2003).22 Managing the financial cycle Facilitating the process of resource reallocation should allow TFP convergence to resume in catching-up economies, while the structural reforms being undertaken in these economies should help ensure that efficient resource allocation lasts. However, there is still one question from the pre-crisis period that I have not addressed: how can we ensure that the  21  Giannetti, M., and S. Ongena, 2009.