2  Ecinci, Kalemli-Ozcan and Sorensen (2007), Financial integration within the EU countries: the role of institutions, confidence and trust, NBER working paper. BIS Review 17/2008  1  Research presented this afternoon also threw a positive light on the role of financial integration with respect to Central and Eastern European countries. In fact, this contrasts a bit with some previous literature that argued that developing and emerging market countries are less able to reap the benefits of financial integration. One paper argued that foreign banks appear to allocate credit more efficiently than domestic banks in this region. 3 And, accordingly, another finds that financial integration has helped convergence and economic growth in Central and Eastern European countries. 4 Financial integration is also of key importance for the performance of the tasks of the Eurosystem. First, a well-integrated financial system enhances the smooth and effective transmission of monetary policy throughout the euro area. Second, financial integration is relevant for our task of contributing to the safeguarding of financial stability. Integrated markets reinforce the shock-absorption capacity of the system, as they are more liquid and offer better opportunities for financing and risk distribution. Finally, without prejudice to the main objective of price stability, we support the general economic policies of the European Union. What is the current state of European financial integration? Here I will be very brief today, as I have characterised this already at various occasions in the past and as financial integration is not a fast-moving process.

Finally, we provide central banking services that also foster financial integration. For example, most recently we successfully launched TARGET2, the second generation of our large-value payment system. By moving from a system composed of mutually interconnected national real-time gross settlement systems to a common system with a single shared platform for payments, we achieve further harmonisation for users in different countries and realise considerable scale economies. We achieved a single price structure for both domestic and cross-border transactions, the possibility of consolidated liquidity management for cross-border financial institutions and a harmonised set of cash settlement services for a variety of connected systems. The new system started in November last year with the first wave of countries. More countries will join in a few days and the last wave will follow in May this year. With a view to maximising the benefits from TARGET2, the Eurosystem is currently also exploring the possibility of providing settlement services in central bank money for eurodenominated securities transactions. The objective of this project, called TARGET2Securities, is to concentrate securities and cash settlements within Europe on an efficient, single platform. The user requirements of the system are currently the subject of a public consultation. The Governing Council will take into consideration the views of the stakeholders as well as the relevant public authorities prior to making a decision, by mid2008, on whether to launch the project.