The European Central Bank (ECB) and the European Commission (EC) published simultaneous reports on Monday showing that financial fragmentation remains high despite recent improvements.
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," the ECB said in a press release.
The ECB also published a summary of the main conclusions of the two reports:
- The financial market integration recovery process that started in mid-2012 continued in most market segments in the first months of 2014. This improvement reflects the fact that there is no longer a redenomination risk linked to the perception of a possible euro area break-up.
- Developments in 2013 suggest that banks' balance sheets have continued to improve, and that financial institutions have started to increase their exposure to cross-border sovereign debt instruments. At the same time, the banking sector is still concentrated and increasingly interconnected.
- In 2013 improvements in financial integration and stability were the result of many factors. These included monetary policy actions - particularly Outright Monetary Transactions (OMTs) - the adoption of relevant regulatory reforms, the progress towards the establishment of the banking union, and a steady reform process in euro area countries.
- Both the euro area and the single market are more economically and financially fragmented compared to the pre-crisis period; there is room to promote further integration in specific segments such as corporate bonds, equity and banking markets.
Due to the above, Internal Market and Services Commissioner Michel Barnier highlighted the need to forge ahead with the implementation of the banking union. Barnier considered the banking union to be of "crucial importance" in order to "restore the financial sector's capacity to support economic activity in the single market without creating excessive amounts of risk for society".
ECB Vice-President Vítor Constâncio further warned that higher levels of financial integration should not be taken for granted. According to Constâncio, it "requires sustained policy actions in the short term, especially the effective implementation of the banking union and, at the national level, carrying on with structural reforms".
The ECB will announce its next monetary policy decision on May 8th.