PRESS RELEASE

Publication of indicators of financial integration in the euro area

29 September 2006

Today the European Central Bank (ECB) is publishing for the second time its annual assessment of the degree of integration in the different financial segments of the euro area.

The report is based on a set of financial integration indicators that are published semi-annually on the ECB web site. While the first issue of the report already covered many important dimensions of the financial system (such as the money, bond, equity and banking markets), the ECB decided to widen the scope of the report by including additional indicators: quantity-based indicators for the main market segments, indicators related to market infrastructures, and new indicators on banking markets.

The ECB fosters European financial integration within its field of competence. A well-integrated financial system contributes to a smooth and effective implementation of monetary policy throughout the euro area and increases the efficiency of the euro area economy. Moreover, deeper financial integration will contribute to the efficiency and stability of the financial system and thus improve the performance of the euro area economy.

The available evidence suggests that the degree of integration varies greatly depending on the market segment and is, among others, correlated with the degree of integration of the underlying infrastructure. The unsecured money market has been fully integrated since the introduction of the euro. The repo market is also highly integrated. The integration of the large-value payment systems has been instrumental in achieving this result. Government bond markets became considerably integrated in the run-up to the EMU and integration has now reached an advanced stage with bond yields converging in all countries and being increasingly driven by common factors. The corporate bond market received a major boost by the introduction of the euro and has achieved a high degree of integration. The development of new synthetic credit risk transfer instruments has contributed to the completeness and integration of credit and bond markets. Progress has also been made in the integration of euro-area equity markets, where equity returns are increasingly determined by common specific factors. The euro area securities infrastructure underpinning both bond and equity markets is however not yet sufficiently integrated. With regard to the euro area banking markets, interbank and capital market-related activities could be considered as fairly integrated, but further progress could still be warranted. At the same time the retail banking components continue to be fragmented.

This lack of integration in retail banking markets is also apparent from the differences in the provision of retail payments services as also shown by the fragmented underlying infrastructure.

To obtain a hard copy of this report, please contact the ECB’s Press and Information Division at the address given below. Alternatively, you can download the full report from the ECB’s website.

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