of the real economy. more specifically, we find that in well - developed and deep financial systems, sectors highly dependent on external sources of funding tend to experience a greater contraction during a banking crisis than do externally dependent sectors in countries with shallower financial systems. in other words, sectors of the real economy that rely heavily on external finance ( that is, do not fund capital expenditures through cash flow ) tend to experience a substantially slower growth of value added during a banking crisis than those sectors that do not rely so heavily on external funding. this effect is more pronounced in countries with more developed financial systems. our results hold for a wide group of countries and over a long time span, but as i note below, have particular relevance to emerging market countries. while these results are consistent with a so - called credit channel impact of banking crises on real economic activity, there are further implications of the " credit channel " view that we explore in more detail. among firms that depend heavily on outside financing, young firms with short histories and firms with a large fraction of hard - to - measure intangible assets, for example, may have particular difficulties raising funds from the market due to information problems. instead, such firms would tend to depend heavily on banks and other intermediaries for funding. consistent with this, we find a greater negative impact of banking crises on growth for industries dominated by young firms that are highly dependent on external finance and for industries with high levels of intangible assets. while all of these results are consistent with a " credit channel " view of the impact of banking crises on real economic activity, we certainly need to explore some alternative explanations before drawing final conclusions. in particular, many factors may be correlated with the level of financial development of a country, so we want to make sure that the level of financial development is not simply standing in for something else. the differences in financial development, for example, can arise from historical, political, cultural, and legal reasons. there is a well - developed literature emphasizing, for instance, that the nature of a country's legal system and the manner in which laws are enforced can have an effect on the development of its financial system. 9 similarly, other country - specific factors also might have an influence on how financial institutions and markets behave. if one of these factors, rather than financial development, is driving the results, we might have to interpret those results differently. as a way to try to address such questions of interpretation, we controlled for the quality of

loss absorption capacity even in adverse circumstances. supporting the european regulatory effort let me now turn to the important role of regulation. in europe, banks are strong today because we have applied the basel regulatory framework to all eu banks. indeed, recent events in other regions have shown just how important it is to have an adequate framework in place for all types of banks. looking ahead, let me highlight three key takeaways that should guide the european regulatory effort. first, the eu needs to fully implement the final outstanding elements of basel iii. we call on co - legislators to support the resilience of the banking sector by implementing these faithfully and without delay. 3 / 4 bis - central bankers'speeches second, we need to complete the banking union. a month ago, the european commission tabled a legislative proposal that will improve how we manage crises affecting mid - sized and smaller banks. this is very welcome, and we hope the legislators will rapidly adopt the proposal. but if we are serious about completing the banking union, we also need to tackle some more ambitious elements : namely, the european deposit insurance scheme ( edis ) and a european framework for providing liquidity to banks in resolution. both of these would further strengthen the resilience of our crisis management framework and should therefore be a top priority for legislators. and third : we need to see further progress on the capital markets union ( cmu ). creating deeper and more integrated capital markets in the eu will provide firms with additional funding sources as alternatives or complements to bank credit. implementing the commission's cmu action plan in full within this legislative cycle should remain one of europe's key goals. conclusion let me conclude. since the emergence of market tensions in march, banking sector risks have come back into the spotlight. we have seen just how rapidly financial market sentiment can change and how confidence in the banking sector can weaken substantially. but euro area banks are weathering the storm. this is in large part due to their solid capital and liquidity positions. we should not be complacent, however. vulnerabilities persist, and we need to closely monitor the situation to safeguard financial stability. the recent market turbulence demonstrates the importance of implementing our banking regulatory framework in full. at the same time, macroprudential policy continues to play a vital role in ensuring the resilience of the system by maintaining or strengthening buffers. if anything, the financial stability concerns raised by recent market tensions revealed that the incomplete banking union