-In her speech before the Royal Institute of International Affairs held in London on 25 February Anne Krueger, Managing Director of the
IMF took a strong view on on European financial integration with regard to the euro introduction. Monetary union has already had a significant impact on Europe's financial markets:
It helped to lower a number of technical, regulatory and psychological barriers
Bond markets were already relatively international in their focus. But
multiplicity of issuers and different credit ratings, limit the liquidity of the market.
Bond issuance continues to be dominated by banks rather than companies, which suggests the market has not yet reached full maturity.
The High-yield bonds market continues to be hampered by differences in national legal frameworks.
A truly pan-European equity market has been hampered by slow progress in bridging the gaps between existing equity trading infrastructures.
In money markets, Europe has gained an integrated interbank market, but integration in the collateralized repo market has proceeded more slowly, with markets remaining largely national and unevenly developed.
The deepening of European capital markets has been uneven. In some segments, national legal traditions still stand in the way of creating a single capital market. The recent compromise struck between the European Parliament and Commission on the Lamfalussy Report holds out the welcome prospect of faster progress on regulatory harmonization. This could bring a single capital market much closer.
Europe's financial system remains dominated by its banks. Consolidation within the banking system has been taking place largely within national borders. As Europe's banking system becomes more concentrated, this will pose important supervisory challenges.
Banking supervision remains organized along national lines, with the same true of the increasingly closely linked insurance sector. Decentralized supervision may be less suited to the increasing capital market orientation of large, globally connected financial institutions where problems can arise and spread quickly, and where rapid intervention may be necessary to deal with problems.
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© International Monetary Fund
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