nevertheless believe it could be an effective way for capital markets union to contribute to consistent pricing of risk across countries. for it will help ensure a homogeneous, but risk - consistent transmission of monetary policy decisions. 10. but capital markets union can deliver on more than just that. it can also greatly increase the efficacy of monetary policy. common to all monetary policy decisions is that their transmission to the real economy is sluggish and can sometimes be incomplete. for example, the extent to which banks are able to lower lending rates following a rate cut depends on many factors beyond the control of monetary policymakers. one can think of the level of competition in the banking sector, or the health of bank balance sheets. a successful capital markets union will open up entirely new channels for the transmission of monetary policy to the real economy, making central bankers much less dependent on a single sector for the transmission of its policy decisions. in that sense, central banks can diversify the channels through which they can influence the economy, adding to its effectiveness. 11. note that economic agents can benefit from capital markets union in a very similar way. households and firms can diversify their dependency on financing, if alternative sources of finance are in abundance, making themselves less vulnerable to risks stemming from a single sector. a well - diversified financial structure increases the resilience of the balance sheets of households and corporations to shocks. and the resilience of the economy as a whole. and when an economy is better able to cope with external shocks, monetary policy will not get distracted from pursuing its primary remit : delivering price stability. 12. the latter is even more relevant for monetary policy in a monetary union. structural differences between national economies imply that the euro area economy is prone to asymmetric shocks. private sector risk - sharing across countries can greatly enhance a smooth transmission of such shocks. this is what capital markets union can accomplish, for an increase in the cross - border holdings of financial instruments will enhance risk - sharing across the euro area, thus improving the functioning of the monetary union. 13. however, capital markets union is no silver bullet. clearly, its introduction does not absolve us from pursuing prudent policies in other policy areas, too. moreover, it will take time before we can reap the full benefits of capital markets union. but there can be no doubt that it will prove an important complement to banking union in enhancing the functioning of our monetary union. 14. at the same time, capital markets union will

is beneficial from a monetary policy perspective, for there are several reasons why better developed and integrated capital markets can make the lives of european central bankers much simpler. 5. as you know, the governing council of the european central bank aims to maintain price stability in the euro area as a whole. to achieve this, the ecb conducts monetary policy. based on the outlook for inflation, we set our policy rates to steer overall financing conditions for households and firms in the euro area. a homogeneous transmission of our monetary policy decisions throughout the financial system enhances the appropriateness of our policy decisions. for the euro area as a whole, and for the participating member states. that is why monetary policy benefits from a level - playing field in financial markets across countries. 6. note that i do not intend to suggest that all economic agents should be able to lend against the exact same conditions. actual financing conditions for individual households and firms are to be determined by the market and not by the ecb. and these should appropriately reflect differences in earnings capacity and risk. 7. this is exactly what went wrong in the run - up to the crisis. lending rates converged throughout the euro area, and no longer reflected actual underlying risks. several potential bis central bankers ’ speeches explanations have been put forward for this. one reason often mentioned is the search - foryield as a consequence of the low interest - rate environment. or the fact that the no - bail out clause in the eu treaty was perceived as not credible. yet another explanation is that gaps in banking regulation were the primary cause of the mispricing of risks in the run - up to the crisis. in my view, all three explanations have been relevant. in fact, these factors are likely to have reinforced each other. 8. in a similar way, i believe that a lack of harmonization in regulation and common standards in euro area capital markets can also be viewed as an aggravating factor. for heterogeneity and inconsistencies in regulation can obscure how losses will be distributed once financial risks materialize. and this can exacerbate the mispricing of risk in financial markets. 9. i think this is a key issue that the commission agenda on capital markets union should address. in my view, one of the obstacles to be tackled is the lack of harmonization in insolvency laws across countries. unfortunately, in the commission ’ s early proposals initiatives to that effect do not feature very prominently. yet, i