, in my view, the most immediate and significant challenge facing emu is to reinforce the integration of both banking systems and capital markets. reinforcing the banking union when the euro was launched, there was actually an expectation that many banks would become truly european, providing retail services across the whole euro area. the reality is quite different. 6 / 11 cross - border consolidation remains very limited and most firms and households in the euro area remain largely dependent on their domestic banking systems to maintain investment and smooth consumption profiles. although no formal barriers to foreign banks exist, relevant distortions arise from stillsignificant specificities in banking regulations across countries. some of the existing savings banks, government - owned banks or regional banks in the eu are protected by national legislations hampering incentives to compete or effectively sheltering them from competition. moreover, regulation fails to fully acknowledge the benefits generally arising from geographical diversification in a single market. we also need to address the current deadlock on the third pillar of the banking union, the european deposit insurance scheme ( edis ). some experts argue that this third element may not be essential once we have in place a stringent resolution framework with homogeneous bail - in requirements ; but in my view, it remains crucial to make edis a reality. such a scheme would have a strong impact on trust and contribute to increased risksharing, insofar as it is designed as a fully fledged mutualised edis. contributions to edis taking into account bank - specific risks could limit the risk of permanent crosssubsidisation and would also help deal with the sovereign - bank nexus. this would contribute to reducing the link between national governments and banks and preventing destabilising cross - border flights to safety in the event of difficulties. moving towards a capital markets union the other key initiative to increase the integration of europe ’ s financial markets and to facilitate risk - sharing capacity in emu is the capital markets union project. the project aims at providing firms with the same funding opportunities, and households with the same saving opportunities, irrespective of the member state in which they are located. 7 / 11 however, inconsistent regulations, as well as varying market practices and industry standards across eu countries, prove to be key impediments in developing a truly pan - european capital market. as a result, country savings and investments are still highly correlated, a fact known as the feldstein - horioka puzzle. this correlation has subsided over time in the case

20. 05. 2019 the need for deepening euro area integration city week 2019 : the international financial services forum pablo hernandez de cos governor ladies and gentlemen, let me start by thanking maurice button and the board of patrons of city week 2019 for their invitation to participate in city week 2019. it is a pleasure to be here together with leading participants from the financial sector. 2019 marks the year in which we are celebrating the 20th anniversary of the launch of the euro. however, this celebration is taking place at quite a challenging point in time. the legacies of the crisis in terms of unemployment and debt, the rise of populism, the threat posed by protectionism and uncertainties stemming from brexit all make for a complex situation. but to the surprise of many, this background has not reduced european citizens ’ support for the european integration process. quite the opposite i would say. euro area citizens have declared the highest level of support for the euro ever recorded. the latest eurobarometer survey shows that 74 % of citizens across the euro area countries favour the economic and monetary union ( emu ), with a single currency, the euro. the survey also reveals strong support for more coordination and economic reforms to improve the performance of national economies. these figures provide solid grounds for european governments and institutions to combine efforts aimed at making the euro area architecture more robust and resilient to shocks, and at increasing its ability to respond when shocks occur. admittedly, europe has already taken bold steps to increase its capacity to detect and handle crises. during the crisis years, two new intergovernmental treaties were introduced, paving the way for strengthening economic and fiscal stability by creating the european stability mechanism. this key instrument provides financial assistance to countries in difficulties and, as recently agreed, may also act as a fiscal backstop in banking resolution processes. new procedures for the surveillance of imbalances ( the macroeconomic imbalances procedure ) and the reform of the stability and growth pact were also agreed. in the financial arena, important reforms, such as the creation of the single supervisory mechanism and the single resolution mechanism for significant banks, were implemented. on top of this, the impulse of monetary policy, with a substantial broadening of the ecb ’ s monetary policy toolkit, was also a crucial factor that helped cope with the euro crisis and its negative impact on price stability. attempts to draw comparisons between the governance framework in the united states and the european union should be mindful that the us currency