The TARGET system processes today around EUR 1500 billion per day, 50% more than the average in 1999 and an estimated three times the amount that all the large-value 11 payment systems in the 12 euro area countries processed together in 1990 . •  Thirdly, a large currency area means deeper and more liquid financial markets. This allows market participants to diversify their risks on a wider basis; moreover, as currency risk is eliminated, they can focus on the analysis of credit risk. A large currency area also provides more scope for specialised institutions to develop. All in all, market efficiency and liquidity 12 help to cushion external shocks . 2.3  Taking into account these benefits, one could question why financial stability issues are still important in the euro area. In my view financial stability issues need to be re-visited today against the backdrop of the farreaching changes observed on the financial markets in the last decade, and taking into account the succession of market instability episodes. Just to name a few, the Asian crisis, the Russian/LTCM crisis in 1998, the “Tech-bubble” as of 2000. These episodes were characterised by situations of liquidity stress, market volatility, and the late discovery of risks that had spread widely through complex hedging and financial innovation devices. In this respect the complex relationship between volatility, financial innovation and financial stability deserves attention. Clearly, volatility levels primarily reflects the degree of uncertainty of market participants.

However, so far, the implementation of these measures has been slow and incomplete. It is a far-reaching project requiring highly diverse measures, including most notably the creation of market infrastructure, the harmonisation of market regulation and supervision, and the strengthening of the European supervisory authorities. 6/7  There is also a need to move towards harmonising insolvency arrangements, both for banks and non-financial corporations, and to tackle aspects such as the bias in some countries’ tax systems towards debt as opposed to equity financing. Moreover, this project takes on particular importance in the context of the exit from the European Union of the United Kingdom, which currently plays a key role as a European financial centre. In connection with the Capital Markets Union, some initiatives have been adopted to provide financing for those segments with scant access to bank lending. One example is the innovation projects for which the promotion of venture capital funds is being considered. Measures have also been adopted to promote the use of simple, transparent and standardised securitisations in order to provide bank lending to small firms. These examples evidence the complementarities between bank markets and capital markets, and also how the Banking Union and the Capital Markets Union reinforce one another. Turning to equity markets, progress has been made to provide firms with access to these markets. Further, many studies have been undertaken to identify the obstacles to international investment. Yet, in order to equip the euro area with greater stability, resolute headway must also be made in European bank integration.