At the moment, economies worldwide are still struggling with the adverse effects of the financial crisis. The average loss of potential output resulting from the financial crisis has been estimated at 8.4%. And these output effects can be very persistent. Crises reduce an economy’s capital stock – and the catch-up process via investment takes time.
Constrained credit supply in times of financial crisis can lead to inefficient capital allocation. Investment in innovations is postponed.This shrinks potential output and productivity, thereby slowing down long-run growth. In order to weaken the negative effects of financial crises on growth, many new regulations have been designed. In Europe, the Banking Union and, more recently, the Capital Markets Union feature prominently.