28 April 2014

ECB report: Financial integration in Europe

The European Commission and the European Central Bank (ECB) have published reports analysing financial integration and stability in Europe. The two annual publications, "Financial Integration in Europe" and the "European Financial Stability and Integration Report", were presented at a conference at the ECB headquarters in Frankfurt. The reports show that significant financial fragmentation remains in the European Union and euro area, despite considerable improvements in recent years.

"Both reports underline the crucial importance of implementing the banking union to restore the financial sector’s capacity to support economic activity in the single market without creating excessive amounts of risk for society", said Internal Market and Services Commissioner Michel Barnier. "After the entry into force of the Single Supervisory Mechanism regulation, the Single Resolution Mechanism and Bank Recovery and Resolution Directive were voted by the European Parliament on 15 April, and are scheduled to be voted by the Council in May. The new legal framework will ensure that banks will face the same market discipline as any other business, rather than being bailed out by European taxpayers."

Full statement (in French)

Press release

Full EC "European Financial Stability and Integration Report" 

Full ECB "Financial Integration in Europe" Report

At the conference, Vítor Constâncio, Vice-President of the ECB, spoke on financial integration and stability, stessing that both studies illustrate that some steady, albeit uneven, progress is being made towards financial stabilisation. Banks are reducing their liquidity buffers, repaying our LTROs and regaining confidence from the markets. Money market integration is slowly improving, particularly in the secured segment. Quantity-based indicators confirm a stabilisation in bond markets and improved integration in equity markets. Given where we stood barely two years ago – on the edge of redenomination risks – such progress is encouraging. However, it does not mean we are entirely out of the danger zone.

Full speech

Sharon Bowles MEP, Chair of the outgoing EP's ECON committee, also spoke at the conference, saying that fragmentation can mean many things and have many causes. Some of it is unwanted as it moves away from the concept of an integrated and single market. That which followed on from the financial crisis was for self-protection - by various parties.

"We have to face the fact that in the financial crisis transmission was through interconnectedness, and we added "too interconnected to fail" to the "too big/complex/interconnected to" list. Quite a lot of what has been done in the regulatory sphere has had, as one aim, to reduce interconnectedness - such as through large exposure regimes - and at the same time we have undoubtedly modified, changed or relocated some interconnectedness through EMIR and CCPs, although we now think we know, or will know, where everything is a little better. BRRD of course also massively increases the effects of interconnectedness with insurance and funds, and I note the increase in interconnectedness with insurance is something already mentioned in the Commission's report."

Full speech © Sharon Bowles MEP

© ECB - European Central Bank