Looking at on-going developments, we are better able to interpret the current situation and assess the fiscal and monetary stances. A good example of this improved understanding is the development of the SYNFINT, the Synthetic Financial Integration Indicator, presented in our Report and that is based on measures of crosscountry price dispersion in the money, bond, equity and banking markets in euro area countries. Looking ahead, we are also better equipped to warn about looming systemic risks or adjustment failings, as well as to identify strengths. 9 Macro-prudential policy will have an important role to play One of the more important goals of the on-going research is the grounding and calibration of macroprudential instruments. The need for a macro-prudential perspective is one of the main lessons stemming from the crisis. In fact, the whole regulatory reform after the crisis was internationally discussed in Basle or in the FSB and the G20, from the macro-prudential perspective. Indeed improving the design of Financial Regulation to ensure a resilient system is the first instrument of macro-prudential policy. I see macro-prudential policy as particularly important for the single currency, as macroprudential tools can in principle allow policymakers to address financial imbalances in a more country-specific and granular way. 9  See Fecht, Gruener and Hartmann, “Financial integration, specialization and systemic risk”, Journal of International Economics, Vol. 88, 2012. BIS central bankers’ speeches  5  I acknowledge that we do not yet have a large body of evidence on the effectiveness of these policies, especially in advanced economies.

This is ultimately the objective of the next phase of banking union: building a single European supervisor via the Single Supervisory Mechanism (SSM). There are four ways in particular I expect the SSM to make a difference to banking in Europe: by improving the quality of supervision; by creating a more homogenous application of rules and standards; by improving incentives for deeper banking integration; and by strengthening the application of macro-prudential policies. The SSM should create the conditions and incentives for deeper integration of the European banking market, which should in turn make the euro area less vulnerable to fragmentation. Barriers that existed in the past to deeper retail banking integration, for example opaque supervisory approval procedures, will no longer be relevant with a single European supervisor. The substantial compliance costs that came from having to observe different sets of rules and interact with several different authorities should also be reduced. At the same time, the benefits of cross-border integration should increase. Cross-border banking groups will be able to optimise their internal management of capital and liquidity. Further efforts to reduce fragmentation and a drive to achieve genuine banking integration can help Europe exit the crisis in at least three ways. First, more integrated banking markets intensify competition: banks, as well as other financial market participants, will have to change their strategies. More competition means that capital is allocated more efficiently. This promotes access to new funding opportunities for companies, encourages investment and thus contributes to higher economic growth.