integration. what i have in mind instead is “ genuine ” integration, whereby financial resources are allocated with reference to the risk - return relationship and not to location ‒ a process which would improve economic diversification in that it would cushion both entrepreneurs and households against local shocks. 16 this should naturally reduce the negative impact of an overextended financial sector by decreasing the probability of inefficient booms and severe busts. how can a single market for capital be realised? in addition to the better integration of governance that i have just talked about, the process rests on the improved integration of retail banking and capital markets. as regards retail banking, even before the crisis, we at the ecb acknowledged that this is one of the least integrated markets in the euro area. 17 the crisis undermined the process of integration by prompting a further retrenching of retail banking services within national borders. the new regulatory and supervisory framework has the potential to steer us towards deeper cross - border integration, and, in the process, to address europe ’ s over - reliance on large banks. evidence before the crisis suggested that the integration of retail lending markets may be a more efficient mechanism for cross - border risksharing than secured or unsecured interbank markets. it is important that the banking union is europe overbanked? report of the advisory scientific committee of the european systemic risk board, no 4 / june 2014. please refer to the financial stability board data gaps initiative and the consultation paper of the aggregation feasibility study group on approaches to aggregate otc derivatives data, february 2014. it should be noted, however, that financial integration can foster the specialisation of production across countries because financial intermediaries having a comparative advantage in lending to local industries can “ reinsure ” across borders. this can be more profitable but increases the exposure of domestic intermediaries to local shocks as well as cross - border contagion risk. the overall effect is ambiguous and can be positive under some assumptions. see fecht, gruner, h. p., and p. hartmann, 2012. financial integration, specialization and systemic risk, journal of international economics. european central bank “ financial integration in europe ”, april 2008. bis central bankers ’ speeches and the regulation against the “ too big to fail ” problem effectively encourage banks to reach an optimal size relative to the european market – that is, large enough to operate across borders and diversify risks, but small enough to be resolved with the resources of

. zingales, 1998, financial dependence and growth, american economic review 88, 559 – 586 ; hartmann, p, heider, f., papaioannou, e., and m. lo duca, 2007, the role of financial markets and innovation in productivity and growth in europe, ecb occasional paper no 72. for a thorough review, see levine, r., 2005, finance and growth : theory, evidence, and mechanisms, in the handbook of economic growth, eds. p. aghion and s. durlauf, north holland : amsterdam. greenspan, a., 1998. “ is there a new economy? ” remarks at the haas annual business faculty research dialogue, university of california, berkeley, 4 september. kaminsky, g., and c. reinhart, 1999, the twin crises : the causes of banking and balance - of - payments problems, american economic review 89, 473 – 500. laeven, l., and f. valencia, 2013, the real effects of financial sector interventions during the crisis, journal of money, credit and banking 45, 147 – 177. bis central bankers ’ speeches excessive leverage can throw the financial system into a crisis resulting in deep and abrupt economic downturns. 5 the crisis has made us understand that the size of the financial sector can exacerbate the trade - off between economic efficiency and financial stability. while finance per se is necessary for growth, an oversized financial industry can be detrimental to real economic activity. of course, the question of what constitutes an “ oversized ” financial sector is a complex one, and the collection of papers on the programme of this conference makes great progress towards providing an answer. recent changes to the global regulatory architecture, particularly regarding the banking union in europe, are in part aimed at mitigating the negative effects that a large and complex modern financial industry can have. these changes should be implemented in a way that avoids eliminating the positive impact of financial services on growth and tackling financial complexity with overly complicated and excessive regulatory interventions. in addition, policy - makers should be increasingly aware of the importance of overcoming fragmentation in european capital markets and of achieving a single market for capital. identifying the problem as regards the link between finance and growth, for a long time, it was common to say that finance affects growth in a positive, monotonic way, as if more is always better. recent empirical evidence, however, has qualified this conventional