EU markets are in different stages of the financial integration process, according to the European Commission's annual Financial Integration Report published in Brussels.
According to the report, while integration is advanced in the money and bond markets, particularly within the euro area, retail services still remain local, with major price differences and low levels of cross-border transactions. This is especially the case in the new member states, including Malta, where there seems to be room for consumers and businesses to benefit from further integration.
Still, according to the report, the financial integration process continued to advance in 2008 and further impetus is likely to come from the implementation of the Markets in Financial Instruments Directive (MiFID), the Single Euro Payments Area (SEPA) and the adoption of the single currency in an increasing number of EU-12 member states.
Commenting on the conclusions of this report, the EU's Internal Market and Services Commissioner Charlie McCreevy said that 2008 was an immensely challenging year for the EU financial sector and it is still difficult to fully assess the structural effects of the financial crisis. At the same time, he said, the most important message is that financial integration needs to go hand in hand with reinforcing financial stability at both EU and global level.
On market structures and competition, the report states that recent initiatives have contributed to enhanced competition in certain segments of the EU financial system.
The post-trading code of conduct for securities has injected momentum in the market by improving price transparency and lowering post-trading fees. This has been further strengthened by implementation of the Markets in Financial Instruments Directive (MiFID). The latter has brought about considerable structural changes, especially in relation to the number of trading venues and the division of market shares. However, in some new member states, the combination of higher margins, costs and profitability for financial services in general, seem to reflect that customers could benefit from a more competitive environment.
According to the Commission, over the last few years the largest euro area banks were more profitable but less efficient than the largest US banks. "It is expected that these higher levels of efficiency could be linked with the ability of US banks to better exploit economies of scale given the size, scope and level of integration of their domestic market. As a result of the financial crisis, both efficiency and profitability have deteriorated for the large euro area banks."
Financial stability was also a main challenge in 2008.
Described as an exceptional year for the EU financial sector, the report states that 2008 was dominated by the financial crisis that originated in the US subprime market.
Apart from the housing and credit boom, fuelled by lax monetary policy, a combination of different factors amplified the crisis, including flaws in risk management, regulatory loopholes, weak supervision, misalignments of incentives, and psychological factors.
"The crisis has underlined the important task that market participants and regulators have in ensuring that appropriate rules and incentives are in place to increase the resilience of the financial system," the report concludes.
What is particularly pressing is the need to better locate and mitigate risks arising from cross-border institutions, the Commission warns.
According to the report, while integration is advanced in the money and bond markets, particularly within the euro area, retail services still remain local, with major price differences and low levels of cross-border transactions. This is especially the case in the new member states, including Malta, where there seems to be room for consumers and businesses to benefit from further integration.
Still, according to the report, the financial integration process continued to advance in 2008 and further impetus is likely to come from the implementation of the Markets in Financial Instruments Directive (MiFID), the Single Euro Payments Area (SEPA) and the adoption of the single currency in an increasing number of EU-12 member states.
Commenting on the conclusions of this report, the EU's Internal Market and Services Commissioner Charlie McCreevy said that 2008 was an immensely challenging year for the EU financial sector and it is still difficult to fully assess the structural effects of the financial crisis. At the same time, he said, the most important message is that financial integration needs to go hand in hand with reinforcing financial stability at both EU and global level.
On market structures and competition, the report states that recent initiatives have contributed to enhanced competition in certain segments of the EU financial system.
The post-trading code of conduct for securities has injected momentum in the market by improving price transparency and lowering post-trading fees. This has been further strengthened by implementation of the Markets in Financial Instruments Directive (MiFID). The latter has brought about considerable structural changes, especially in relation to the number of trading venues and the division of market shares. However, in some new member states, the combination of higher margins, costs and profitability for financial services in general, seem to reflect that customers could benefit from a more competitive environment.
According to the Commission, over the last few years the largest euro area banks were more profitable but less efficient than the largest US banks. "It is expected that these higher levels of efficiency could be linked with the ability of US banks to better exploit economies of scale given the size, scope and level of integration of their domestic market. As a result of the financial crisis, both efficiency and profitability have deteriorated for the large euro area banks."
Financial stability was also a main challenge in 2008.
Described as an exceptional year for the EU financial sector, the report states that 2008 was dominated by the financial crisis that originated in the US subprime market.
Apart from the housing and credit boom, fuelled by lax monetary policy, a combination of different factors amplified the crisis, including flaws in risk management, regulatory loopholes, weak supervision, misalignments of incentives, and psychological factors.
"The crisis has underlined the important task that market participants and regulators have in ensuring that appropriate rules and incentives are in place to increase the resilience of the financial system," the report concludes.
What is particularly pressing is the need to better locate and mitigate risks arising from cross-border institutions, the Commission warns.