this later on. but, unlike in banking, for most firms involved in market - based finance leverage is not at the core of the business model. and leverage, or the lack of it, affects liquidity risk as well as solvency risk. in a crisis, when credit is constrained, the unwinding of leverage and the threat of insolvency drives fire - sales of assets which amplify financial stress. unleveraged investors may of course still run if asset prices fall, but they are not forced to do so by the withdrawal of credit. historically, when faced with deteriorating financial asset markets, investors in retail funds, insurance companies and pension funds have on the whole tended to stick fast and run their losses. peak outflows from european investment funds investing in investment grade corporate bonds in the crisis were no more than 5 % in a month. large scale losses to investment funds, insurance companies and pension funds can present very difficult issues and strain the financial system, especially through their knock on effects on other parts of the system. but in and of themselves, they have been less likely to lead to systemic failure compared to major stress in the banking system that provides not just credit but the means of transaction – i. e. the money itself – in our economies. empirical work supports this. see for example, allard and blavy ( 2011 ) : “ market - based economies experience significantly and durably stronger rebounds than the bank - based ones ( in particular the more bank - based economies of continental europe ). ” carney in contrast, at northern rock over the second half of 2016 retail and wholesale deposits each fell by nearly 60 %. all speeches are available online at www. bankofengland. co. uk / speeches in a major crisis, market - based finance might therefore be expected to be a materially less disruptive way of passing very substantial losses back to end investors than bank lending. this is particularly true in the case of international capital flows where bank lending across borders, particularly short term inter - bank lending, can create an explosive channel of transmission of systemic risk from one jurisdiction to the next if banks do not have the resilience to absorb major losses and authorities are not able to resolve them safely if they fail. it is no accident that the ecb identified market - based finance as an important risk sharing mechanism between euro area countries and encouraged the development of an eu capital markets union. risks in market - based finance i have noted the

individual digital markets rather than one single digital market. this is holding back innovation, growth and, ultimately, jobs. studies 7 suggest that establishing a harmonised and well - regulated digital single market holds the same potential as the introduction of the original one, raising gdp by as much as 4 %. in germany, for example, this could imply an additional 427, 000 jobs over the period 2015 to 2020. some steps have already been taken towards a true single market for the digital economy, but we are not there yet. continuing to the end would provide a major boost to european competitiveness. it is therefore more than worth the effort. ladies and gentlemen, the field of policy which has seen the most far - reaching centralisation in europe is clearly the field of monetary policy, at least for the 18 member states of the euro area. but the mutualisation of monetary policy is not only an issue for the euro - area member states but for all european countries. our extensive trade links imply that developments in the monetary union reverberate in the non - euro - area countries as well, as the crisis has shown very forcefully. the euro area teams up one common monetary policy with 18 national fiscal and economic policies. this approach reflects a currency area composed of sovereign member states. it grants member states sufficient leeway to preserve their diversity, that is, to establish their own business models or to tailor institutions and policies to their own national preferences. at the same time, it leaves the consequences of such decisions with the respective member state and consistently rules out the option of mutualising public debt with other euro - area states. but this set - up also creates vulnerabilities. first, a combination of this kind gives rise to a deficit bias, as it allows the costs of fiscal imprudence to be shifted partially on to others. an unsustainable fiscal situation in one country has repercussions for monetary union as a whole. you can compare this to what economists call the “ tragedy of the commons ”. just as overfishing creates negative externalities for other countries, excessive public debt harms the euro area as a whole. excessive debt in one member state drives up longer - term interest rates for all euro - area countries. and second, each member state issues debt in a currency it cannot create. hence, a high level of fiscal discipline is needed to ensure that solvency concerns do not spiral out of control. for monetary policymakers focussing on maintaining price stability,