economy ’ s resilience to large adverse shocks and limit the need for policy intervention in times of crisis. 7 measures that promote more diversification of financing instruments revive the securitisation market and encourage a resilient form of financial integration, are particularly important in this respect. fostering the development of more diverse financial instruments for borrowers, as well as facilitating their substitutability, contributes to partially shielding the economy from disturbances that may hit the banking sector, thereby enhancing financial stability and reducing the need for non - standard monetary policy measures aimed at restoring the flow of credit to boeckx, j., dossche, m. and peersman, g. ( 2014 ), “ effectiveness and transmission of the ecb ’ s balance sheet policies ”, working paper research series, no 275, national bank of belgium, december. la porta, r., lopez - de - silanes, f., shleifer, a. and vishny, r. w. ( 1998 ), “ law and finance ”, journal of political economy, vol. 106 ( 6 ), pp. 1113 – 55. cecchetti, s. g. ( 1999 ), “ legal structure, financial structure, and the monetary policy transmission mechanism ”, frbny economic policy review, federal reserve bank of new york, july, pp. 9 – 28 ; danthine, j - p., giavazzi, f. and von thadden, e - l. ( 2000 ), “ european financial markets after emu : a first assessment ”, cepr discussion papers, no 2413. association for financial markets in europe ( 2016 ), potential economic gains from reforming insolvency law in europe, february. de bondt, g., mojon, b. and valla, n. ( 2005 ), “ term structure and the sluggishness of retail bank interest rates in euro area countries ”, working paper series, no 518, ecb, september. de fiore, f. and uhlig, h. ( 2015 ), “ corporate debt structure and the financial crisis ”, journal of money, credit and banking, vol. 47 ( 8 ), pp. 1571 – 98. bis central bankers ’ speeches households and non - financial corporations. this does not imply that cmu would change the structure of the european financial system to make it similar to the american one where market

whereby some countries are in a recession while others may be booming. the effective risk - sharing in the united states is essential in making the us a successful monetary union. there are three main mechanisms that risk - sharing can take between member states in a political and economic area. first, countries can share risk via cross - ownership of productive assets, a mechanism facilitated by developed capital markets. second, a system of taxes and transfers can serve as a vehicle for further income smoothing. third, member states can smooth consumption by adjusting their asset portfolios, by lending and borrowing in international credit markets, for example. european commission ( 2015 ), “ communication from the commission to the european parliament, the council, the european economic and social committee and the committee of the regions – action plan on building a capital markets union ”, com ( 2015 ) 468 final, september. bank of england and ecb ( 2014 ), the case for a better functioning securitisation market in the european union – a discussion paper, may. bis central bankers ’ speeches the introduction of the euro has fostered risk - sharing – available estimates suggest that 57 % of shocks to country gdp per capita were smoothed in 2008 – 2009. 10 however, smoothing resulting from international cross - ownership of assets remained at low levels. by way of comparison, the united states has traditionally been characterised by a very high degree of income and consumption smoothing across states. available evidence suggests that about 75 % of income shocks in individual states are smoothed, with 62 % of state - specific shocks being smoothed through market transactions. these can take the form of cross regional holdings of financial assets or direct investments, as well as borrowing and lending credit operations. 11 this underlines the advantage of, in the context of cmu, being particularly focused on stimulating equity financing. indeed, our upcoming report on financial integration 12 finds that debt finance can magnify the adverse impact of negative shocks on economic growth. in contrast, equity and foreign direct investment ( fdi ), and longer - maturity debt in general, are leading to a more resilient form of financial integration. one way to stimulate equity financing via the cmu agenda would be to reduce the existing bias towards debt in national taxation. it should be underlined that a substantial effect of risk sharing via cross border holdings of financial assets is predicated on attaining a fully fledged cmu. a genuine cmu would mean achieving a high level of financial integration in order to complete the single market in this area.