and capital to be more efficiently managed at the group level. and with the single supervisory mechanism ( ssm ) and the new resolution framework barriers to entry and exit into national markets are expected to fall. all this should meaningfully lower the cost of doing business for cross - border banks and increase efficiency in the sector. at the same time, a more integrated banking landscape implies greater risk - sharing within the sector, which should in turn support the stability of credit provision. cross - border integration entails greater geographical diversification. 11 and the local affiliates of crossborder banks are also less likely to be exposed to the kind of market funding dry - ups we saw during the crisis, as intragroup funding acts as a shock - absorber. 12 that said, we of course do not want to move from a situation of too low concentration towards a banking landscape dominated by large banks with excessive market power. recent research looking at the pre - crisis period suggests that where banks face limited competition in their domestic markets, financing constraints for smes are higher. moreover, the effect of bank market power on financing constraints increases in financial systems that are more bank dependent. 13 this underscores the general need, as i mentioned earlier, to create a more balanced financing mix between banks and capital markets. but it also points again to the particular importance of securitisation. with well - functioning securitisation markets some of the benefits of cross - border banks – for instance risk - sharing – can be replicated by having small, local banks originate - to - distribute loans while larger, global banks securitise and market them. in see for example anna kovner, james vickery, and lily zhou, “ do big banks have lower operating costs?, ” federal reserve bank of new york economic policy review, volume 20, no. 2, forthcoming. “ financial integration in europe ”, march 2007. in line with this, carletti, e., hartmann, p., and ongena, s. ( 2007 ), “ the economic impact of merger control : what is special about banking? ”, ecb working paper no 786, july, find empirical evidence that the opacity of national bank merger reviews entered elements of inefficiency in banking relative to non - financial corporate sectors. for a discussion on why retail bank integration may be a particularly attractive risk - sharing mechanism, see e. g. fecht, f., gruner

bis central bankers'speeches the best way is to keep running stress tests on different aspects of the financial system. the auto industry has tested air bags in cars for a long time for how they perform in different types of collisions. “ crash - testing ” for banks only became standard practice relatively recently. more needs to be done to extend this type of analysis to newer players in the system, such as asset managers and other non - bank financial institutions. this is quite challenging because their activity often crosses borders, and the ecosystem that needs to be modelled is very complex. the bank of canada and the fsb are both looking at how to model these interlinkages. 16 i find work to stress - test the system particularly worthwhile because it helps identify where safeguards should be maintained or strengthened. regulators around the world also need to continue to make good use of macroprudential policies to address localized vulnerabilities as they emerge. even if these types of policies slow economic growth in the short term, they ’ ll help avoid more painful adjustments in the long run. this is important for both advanced and emerging - market economies. individuals play a role as well. as i said at the beginning, high leverage can leave any of us in a vulnerable financial position. i ’ m hoping that prospective homeowners and other borrowers do their own stress tests so that they can be confident that the debt they take on will be manageable over time. before i conclude, let me take a minute to say what we should absolutely not do : have a trade war. advocates of protectionist measures say that imposing barriers like tariffs on countries with trade surpluses will help reduce disparities in international trade and lead to more domestic production and jobs. this logic may be seductive, but it ’ s misguided. in a trade war, no one gains and everyone loses. tariffs lower gdp for everyone because they harm investment and productivity. 17 that ’ s why it would be good for everyone if the united states and china resolved their dispute. an end to us tariffs on steel and aluminum would also be a welcome relief to many businesses and workers in canada and other affected countries. and, of course, the canadaunited states - mexico agreement still needs to be ratified. even with these steps, getting over the general malaise around trade policies will require some tangible commitment and a plan to modernize the world trade organization ’ s trade rules — including for intellectual property — and its dispute settlement mechanism. this would