of the esrb, a new independent body that will for the first time carry out a comprehensive macro - prudential oversight of the financial system of the eu. the esrb will also issue risk warnings, and, where appropriate, recommendations, and follow up their implementation. this body will bring together the central bankers, the heads of the three supervisory authorities, the commission together with the supervisors of the 27 eu member states to regularly discuss and assess the financial stability conditions in the eu. in that respect, the esrb shows some keen similarities with the financial stability council in the proposed financial reform in the united states. the esrb is expected to support financial integration through its contribution to financial stability in the eu. indeed, if market participants are confident that the authorities take properly into account the interdependencies between countries and the various components of the financial system, they are likely to fully exploit the possibilities offered by cross - border activities in the eu. on the part of the ecb, i can assure you that we stand ready to support the esrb, in particular taking into account the important presence of the members of the general council of the ecb in the esrb and the fact that the ecb will provide the secretariat and analytical, statistical, logistical and administrative support to the esrb, as required under the legislative proposals. preparatory work at the ecb has been organised through the setting up of an ad hoc team and is under way so that the esrb can take up its work after its formal establishment. the ecb is in the process of enhancing its capabilities for monitoring and assessing financial stability risks. only a number of weeks ago, we reformed our directorate financial stability and supervision into a directorate general financial stability with more resources. in all this, we also try to draw as much as possible on synergies with existing work and resources, both within the ecb and the european system of central banks ( escb ), the constellation of the 27 national central banks of the european union. i would now turn to the panel and ask our guests to share with us their observations.

vitor constancio : financial integration and macro - prudential policy speech by mr vitor constancio, vice - president of the european central bank, at the joint conference, organised by the european commission and the european central bank “ european financial integration and stability ”, frankfurt am main, 27 april 2015. * * * ladies and gentlemen, the financial and sovereign crises have markedly changed our understanding of financial interactions in the economic and monetary union. we have experienced how quickly apparent integration among member states can unravel and how it can pose a threat to economic activity, job creation and price stability. the degree of retrenchment was particularly seen in the cross - border financing of banks and sovereigns. at the height of the crisis, banks which relied on cross - border wholesale markets saw their funding dry up and sovereign debt holdings retrenched behind national borders. the implications for the real economy were highly damaging. not only cross - border financing for investments dried up, but lending to the domestic real economy broke down. without fully developed cross - border capital markets, and with fiscal policy unable to provide full insurance, the euro area was left without risk - sharing arrangements. the free flow of capital should not be restrained beforehand, even though it does permit the fast unravelling in times of crisis. after all, free capital flow is a pre - condition for financial integration. instead, the conclusion is rather to promote initiatives that enhance risk - sharing across member states, such as the banking union and the capital markets union, and at the same time improve the overall regulatory and policy framework to reduce the incidence of crises. with the experience of this financial and sovereign crisis, we have improved our understanding of financial interlinkages, our datasets and ultimately also improved the regulatory and policy framework. in addition, an important change to the framework was the operational start of the ssm on 4 november 2014, when macro - prudential responsibilities were also attributed to the ecb. in the following section i will dwell on the importance of these macro - prudential powers for promoting financial integration. i will share first - hand experience in the implementation of macro - prudential measures and give my views on the requisites for a genuine capital markets union. i will finally conclude by outlining a path for strengthening the overall macroprudential framework. financial integration and macro - prudential policies macro - prudential policy is geared to promote financial stability through two key mechanisms : first