May 03, 2018

ECB released its annual report on financial integration in Europe, at a joint conference with EC in Frankfurt. The report contributes to the advancement of the financial integration process in Europe by analyzing the relevant developments and policies. The report also discusses certain aspects of the quality of financial integration, including the realization of the desired economic benefits and the degree of resilience.

In this report, ECB provides its assessment of the degree of financial integration in the euro area and summarizes the main activities that the Eurosystem has pursued in 2017 and early 2018, with a view to fostering financial integration in the euro area. Overall, the euro area financial integration has become more resilient to adverse shocks over time. This is reflected in the medium-term increases in foreign equity investment relative to foreign debt investment in the euro area and in the foreign direct investment relative to portfolio equity investment. Additionally, the proportion of cross-border retail bank lending relative to interbank lending has gradually increased over a longer period of time. The only exception is the development in cross-border, short-term debt holdings, which have recently increased relative to long-term debt holdings.

The completion of the Banking Union and further progress with the Capital Markets Union should remain policy priorities in Europe, as there is room for further financial integration. The ECB Vice President Vítor Constâncio said, “It is a big waste to have taken the huge step to adopt a single currency and continue to forgo the benefits that could be reaped by creating a true banking and capital markets union. I believe that euro area countries should forge ahead in enhanced cooperation in order to more rapidly achieve capital markets union.” The recent progress in risk reduction should be matched by steps toward risk-sharing through a credible common fiscal backstop for the Single Resolution Fund and the introduction of a European deposit insurance scheme. Further improving and harmonizing insolvency frameworks can significantly enhance the functioning of both the banking and the capital markets union. Moreover, new research by the ECB and others outlined in the report suggests that initiatives to further develop equity markets in Europe would promise to foster innovation, growth, and cross-country risk sharing. 

 

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Keywords: Europe, EU, Banking, Securities, Financial Integration, Risk Sharing, Capital Markets Union, Banking Union, Cross-border Waivers, ECB

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