To ensure progress towards best practices in this field as well as to respond to the increasing need for the effective cross-border mobilisation of liquidity, closer coherence of supervisory requirements and approaches with respect to liquidity risk is also warranted. The recently published consultation paper by the Basel Committee on “Principles for Sound Liquidity Risk Management and Supervision” constitutes an important starting point in that direction. Finally, the institutional arrangements for cross-border cooperation among authorities should be further enhanced, both during situations of financial distress and in normal times. As regards crisis management arrangements, one priority in my view will be to clarify responsibilities and procedures to support timely and well-targeted public sector action. The recently agreed EU-wide Memorandum of Understanding between supervisory authorities, central banks and finance ministries on cooperation in cross-border financial crisis situations could also serve as a basis for improvements at the international level. With regard to ongoing supervision, I fully support the FSF’s proposal to set up colleges of supervisory authorities for the largest globally active institutions by the end of this year. In the  6  BIS Review 86/2008  EU, such informal institutional infrastructures of supervisors to support greater informationsharing and coordination in the supervision of cross-border groups are already in place. Our experience in Europe points to a number of elements that are crucial for ensuring the effective functioning of supervisory colleges, which may also be relevant for further developing the international arrangements in this field.

At the same time, greater global interconnectedness will continue to necessitate substantial efforts towards enhanced international cooperation. I will mention a number of priority issues in this context. BIS Review 86/2008  1  The state of European financial integration Let me begin with a brief review of the current state of European financial integration. Completing the single financial market is a key priority on the European economic agenda for a number of reasons. First, an integrated financial market is a prerequisite for realising the full economic potential of Europe, as highlighted in the Lisbon strategy. A study by London Economics estimates that the integration of the European bond and equity markets could result in additional GDP growth of around 1% over a ten-year period, or approximately 100 billion euro. 1 Second, financial integration is also a crucial element in the safe and efficient functioning of the monetary union. In particular, financial markets that are more integrated provide strong support for the effective transmission of the single monetary policy and the smooth operation of the underlying payment systems. By enhancing the depth and liquidity of financial markets, integration also enhances the resilience of the European financial system. The ECB has, therefore, always been a strong supporter of the European financial integration process and we have monitored the respective developments very closely. Based on a set of quantitative indicators, we review the state of financial integration in the money, bond, equity and banking markets in our annual report on Financial Integration in Europe.