view that a common currency and a common central bank actually determine a unified banking system. in a nutshell, access to a common source of central bank liquidity and a common money market – as well as confidence in the common currency – create strong interconnections between all banks operating in the single currency area. this is the case irrespective of whether we have pan - european banks, or whether discrepancies remain in local retail markets. the case of the united states is illustrative. even when strong inter - state banking limitations were in place – restricting retail banking activities to small local markets – the us banking system was, nevertheless, commonly viewed as a single system. illustrative facts the progress made with integration in wholesale activities has been rapid and remarkable. first, a common euro money market has been in place since the early days of the euro. a large number of financial products can be traded easily with minimal price distortions, small enough to prevent arbitrage across countries. likewise, data on cross - border trade flows provide a strong indication of market unification. in the case of the predominantly used unsecured interbank contracts, the share of counterparties from other euro area countries has more than doubled after the introduction of the euro. in addition, a large proportion of the activity in euro is conducted with counterparties outside the euro area, especially in london. the share of cross - border transactions is somewhat lower in the case of repo transactions, because of remaining legal and tax barriers and settlement difficulties. all in all, less than 40 % of all interbank market activity is now conducted with domestic counterparties. in 1998, the share was still over 60 %. second, the wholesale payment infrastructure for the euro area – including target, euro i and euro access frankfurt – is already very unified. payment flows in these systems again indicate a significant increase in cross - border interbank trading after the introduction of the euro. in terms of value, cross - border transactions currently account for 40 % of all kinds of target payments, for instance. the degree of integration is certainly lower for securities settlement, even though a process of consolidation has been taking place. third, the degree of integration of securities market activities is usually misjudged, since attention is focused on the costs and difficulties of individual investors when investing abroad. the picture is completely different for wholesale activities. the corporate finance markets for major customers are actually already quite highly integrated. to give an example, the share

of domestic book - runners for bonds issued by euro area companies dropped from over 80 % in 1995 to 36 % in 2000. as in many other securities and derivative market activities, the market structure relies on large european or global financial groups. the same trend towards a high level of integration also holds true of wholesale asset management, with investments being increasingly diversified across borders. in terms of volume, growth has been very impressive in the euro - denominated securities markets, until the very recent slowdown and increased market uncertainty after the tragic events in the united states. the deepening of the markets has been particularly strong for bonds – euro - denominated bonds issued by private entities doubled during 1999, and market activity remained quite strong until the summer of this year. challenges stemming from integration two major challenges for authorities in charge of financial stability emerge from the common wholesale banking system : vulnerability to common shocks and potential contagion of major problems across many countries, should such problems arise. let me take the issue of common shocks first. clearly, integration opens up a wide range of opportunities for growth and contributes to increasing the resilience of the system. it brings along a wider range of funding sources and – on the asset side – the degree of diversification of exposures increases. but integration also renders financial institutions more exposed to common shocks. for the largest banks, area - wide risks affecting specific lines of business increasingly matter more than the home country - related risks. one way of illustrating this point is to take a look at banks'share price development. since the beginning of the year, the share prices of almost all major european banks have declined. the 30 largest banks have lost, on average, around 25 % of their value. the overall deterioration in global macroeconomic conditions and financial market volumes has affected all institutions, as banks'profit outlook has deteriorated following the likely increase in provisioning needs and reductions in income from market - related activities. however, the stock market changes for these 30 banks range widely from a small plus to very significant minuses of over 50 %. in line with the notion that the home - country risks have lost in importance, banks'nationality is no longer a very relevant determinant of the size of the stock market reaction. to give you just one example, large retail - oriented banks have suffered only a mild deterioration, while the share prices of wholesale and market - oriented banks from even the same countries have declined quite substantially. in general, the greatest stock market reductions have