An efficient financial system is essential to the good functioning of the economy. The various functions of the financial system can be provided either by banks or by markets. These two sources of funding are complementary, and the exact composition between banks and markets is usually not decisive. Nevertheless, the European financial system is too strongly bank-based and its markets are underdeveloped. It is absolutely necessary to rebalance it to make it favourable to growth and employment again. Developing and integrating European financial markets will allow firms to access a diversified source of funding, adapted to their needs, and increase risk-sharing between European countries to help them absorb shocks. The capital markets union is a long-term project, but a series of ambitious reforms and a new institutional architecture could steer the financial system in the right direction.