markets than the conduct of monetary policies at the national level. second, frictions are hard to identify. the academic literature in the 1990s focused primarily on the importance of capital controls for the cross - border integration of financial markets. capital controls have been reduced significantly in most advanced economies, leading to expectations that the integration of financial markets would proceed rapidly. yet barriers to full integration remain in place. in europe, price - based measures of financial integration declined strongly after the financial crisis and remain below pre - crisis levels ( figure 1 ). quantity - based measures have not increased over the past 15 years or so. [ 8 ] key advancements in the measurement of frictions based on gravity models and micro - level data have indeed shown that there are many regulatory, cultural, and institutional frictions beyond capital controls that matter. third, communicating the benefits of the cmu project is difficult. public discussions often portray the cmu as a project that may diminish the role of banks or that may be promoting anglo - saxon capital markets. consequently, and given the ongoing discussion on brexit, the project may be perceived as having lost its political urgency. yet neither of these narratives captures the core of the cmu project : the potential welfare benefits that it can bring for consumers and households. fourth, removing remaining barriers of integration is becoming increasingly harder. initially, the removal of capital controls and restrictions to the cross - border movement of capital was a relatively easy administrative task. as those “ low - hanging fruits ” have been picked, more difficult measures remain to be tackled. take, for example, frictions resulting from different legal systems to deal with insolvencies. such differences constrain the collection of collateral and the securitisation of bank loans across countries in case of a default of the borrower. it has been argued that harmonisation of insolvency legislation would bring benefits. [ 10 ] yet insolvency legislation is so deeply engrained in legal traditions and national norms that it is hard to see how a strong degree of harmonisation could be achieved in the foreseeable future. hence, a more realistic approach would be start with, identify, and remove issues that impede the transparency, speed, and costs of national insolvency laws and thus increase their effectiveness. more fundamentally, any steps towards further integration depend on the political economy of reforms : do reforms provide net benefits to incumbents? how powerful politically are those incumbents? [ 11 ] as key

point is : what do we need to do in order to restore the principle of liability? the decisive point is that banks must be able to fail without dragging down the entire financial system with them. to this end, a new international standard on the recovery and resolution of systemically relevant banks has been developed. having this new standard is a major step forward. at the same time, a single resolution mechanism will be a central pillar of the european banking union. it will allow authorities to restructure or resolve banks without putting taxpayers ’ money at stake. the owners of the bank and the creditors will be the first in line when it comes to bearing the costs of a bank failure. due to its importance, let me stress how crucial it is that those involved in the negotiations reach an agreement on the european single resolution mechanism prior to the european elections in may. a european banking supervision cannot be effective without a european resolution mechanism. in the same context, the comprehensive assessment is crucial as a precondition for a successful banking union. the objective is to uncover any legacy assets in banks ’ balance sheets and to assess their resilience to stress scenarios. with that objective in mind, the asset quality review and the stress test have to be tough and thorough. this will ensure that european supervision and european resolution mechanisms do not have to deal with problems that arose under national supervision. banks and states aligning the banking sector with the principles of a market economy will take us a big step towards financial stability. but it won ’ t take us all the way. to safeguard the stability of the entire financial system, we have to look beyond the banks. one issue we definitely have to address is the connection between banks and the public sector. the banking system is closely linked with public finances. this link was a major driver bis central bankers ’ speeches of the crisis in the euro area. so, let us now take a closer look at the link between banks and states. when the financial crisis unfolded and banks everywhere ran into difficulties, governments had to step in to avoid a breakdown of the entire financial system. this experience is a real world example of the “ too big to fail ” problem which i discussed a moment ago. however, saving banks is a costly endeavour for governments. let ’ s take ireland as an example. in order to save its banking sector, ireland ran up a budget deficit amounting to 30 % of its economic output in 2010. in the same year, germany added almost €33 billion to its public