The need for improved cross-border cooperation On the other hand, it is a matter of some concern that whereas modalities for crisis management have been, or are in the process of being formalised effectively in most jurisdictions, including Malta, the way forward for the resolution of crises of a cross-border nature, and requiring the prompt intervention of central banks and supervisors that operate in different time zones and with different day-to-day practices, is not yet clearly defined. Some progress in this respect has been made at the EU level through the formalisation of the Memoranda of Understanding of the ESCB on high-level principles of co-operation in crisis management situations and between payment systems overseers and banking supervisors. However, these agreements, to which the Central Bank of Malta and the MFSA are also a party, do not go far enough. The implications of systemic crises whose resolution would, for example, require some form of fiscal input and possibly also the contribution of other entities spanning different jurisdictions are not yet articulated. This issue will hopefully be addressed during the forthcoming review of the EU Banking Codified Directive of March 2000. As the two key institutions with financial stability responsibilities, the Bank and the Authority have a direct interest in the future evolution of international co-operative arrangements. Such arrangements, moreover, will also impact on the way in which the two institutions seek to co-operate with each other and with similar authorities based abroad.

By contrast, retail banking markets have remained fragmented so far. For instance, the cross-border share of loans to non-banks has more or less stagnated at a very low level, below 5%. Similarly, the cross-country dispersion of banks’ interest rates on loans to nonfinancial corporations and households has remained relatively high, especially with regard to consumer loans. Public sector action to foster financial integration Further efforts are needed to complete the single financial market, particularly in those areas where integration is currently lagging behind, namely in the corporate bond, equity and retail banking markets. While I would like to highlight again the primary role of market-led action in this respect, public authorities should nevertheless strive to facilitate progress. I see three main priorities at the current juncture, namely to: (i) further enhance the EU institutional setting for financial regulation and supervision; (ii) remove obstacles to cross-border securities clearing and settlement; and (iii) enhance the EU regulatory framework and market infrastructure for retail banking. The European financial integration process presents a twin challenge for the EU regulatory and supervisory architecture. First, closer convergence of prudential rules and supervisory practices is needed in order to facilitate the efficient operation of cross-border financial institutions and to safeguard an effective pan-European level playing field. Second, while financial integration increases the overall shock-absorbing capacity of the financial system it also increases the likelihood that financial risks may be cross-border in origin or nature. Against this background closer cross-border cooperation in monitoring and addressing financial risks is of the essence.