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Financial integration improves across EU, says ECB

Financial integration in Europe has recovered to a level close to where it was before the Eurozone financial crisis began, the European Central Bank (ECB) said in a new report28 Apr 2015

Financial integration is vital for restoring credit flows, the ECB said. The bank defines financial integration as meaning that, for a given set of financial instruments or services, all markets face a single set of rules, have equal access to the instruments or services, and are treated equally.

This "fosters a smooth and balanced transmission of monetary policy throughout the euro area [and is] relevant for financial stability", the report said.

The recovery in integration is largely due to the establishment of a Banking Union by the ECB, particularly the outright monetary transaction framework brought in in 2012, the single supervisory mechanism, plus comprehensive assessment of banks and other "unconventional" monetary policy actions taken by the ECB, it said.

Full implementation of the Banking Union is "crucial in order to sustain the progress made," the ECB said.

Financial integration is measured by FINTEC, a composite indicator on financial integration set up in 2005, which measures standard indicators of money, bond, equity and banking market segments, the ECB said.

The annual report looks at four market segments: money, bonds, banking and equity. This year, progress can be seen across all except equity, "where ..  recent developments have shown some volatility", the bank said.