jean - claude trichet : financial integration in europe and important financial sector issues keynote speech by mr jean - claude trichet, president of the european central bank, at the second symposium of the ecb - cfs research network on “ capital markets and financial integration in europe ”, frankfurt am main, 13 february 2008. * * * ladies and gentlemen, it is a great pleasure for me to address such a distinguished audience of researchers, market participants and policy makers here at the second symposium of the ecb - cfs research network on “ capital markets and financial integration in europe ”. as you will probably all appreciate, we are living in challenging times right now. and many, although not all, of the main challenges relate to financial sectors. so, for my remarks today i have made a selection of important financial sector issues, some more structural and others more related to recent developments. my presentation is divided into two broad parts. in the first part, i would like to broadly address the importance of financial integration in europe, review the current state of integration and tell you about our activities in this area. in the second part i would like to look at one specific part of the european regulatory set - up that has been less often discussed in the past in relation to financial integration, namely the structure of deposit insurance schemes. i will conclude by some remarks on the present very significant market corrections and financial turbulences that we experienced in the international financial system since the summer last year. financial integration financial integration is an important part of the lisbon agenda and the european union ’ s single market program. in particular, among industrial countries the free flow of capital across borders unleashes competitive pressures that reduce the cost of capital and allows for better sharing of risk for consumers and firms. it is therefore the long - standing view of the eurosystem that financial integration is an important process for the general well - functioning of the european economy. since its creation in 2002, the ecb - cfs network has featured important pieces of research that further substantiated our conviction in this regard. we have seen more of this since this morning in the present symposium. one paper adds that the benefits of financial openness through the corporate sector arise particularly from improvements in total factor productivity, rather than through capital accumulation. 1 another illustrates how cultural factors, such as mutual trust and confidence, matter for the degree of risk sharing even among european regions within the same country. 2 while we have certainly made a lot of important progress

these forecasts? two important determinants, among others, that have been adversely affecting private consumption and investment are the perceived unusually high uncertainty surrounding the european and global economic outlook and the exceptionally low confidence in the financial system. reducing this uncertainty and restoring confidence will be crucial for increasing the effectiveness of the policy measures being implemented and the pace of the recovery. the estimated total potential impact of the ongoing crisis on the value of assets held by global and european financial intermediaries is very large and has recently been revised upwards. according to the imf, the total potential writedowns on assets originated in the united states, europe and japan could reach usd 4. 1 trillion over the period 2007 – 2010, of which usd 2. 8 trillion would be borne by banks. the total expected writedowns on assets – both loans and securities – held by european banks are estimated at usd 737 billion. it is useful to distinguish between the actual losses incurred so far, and potential future losses. in europe, the reported writedowns ( on securities and loans ) of banks so far 3 amount to almost usd 358 billion ( of which euro area banks account for less than usd 173 billion ). at the same time, a total of usd 382 billion of fresh capital has been raised by european banks ( of which usd 190 billion was raised by euro area banks ). therefore, the newly injected capital into european and euro area banks exceeded the reported writedowns. looking forward, the potential further losses of european banks until the end of 2010 are estimated at usd 750 billion. 4 it is important, however, to keep in mind that estimates of the potential future writedowns on assets are based on many underlying assumptions concerning the future path of economic activity, asset market developments and the calculation of impairment charges on loans. these estimates are therefore subject to a substantial margin of error. there is, however, one important point concerning the estimated potential future writedowns of european banks. they mainly reflect expected losses on loans and to a lesser extent further writedowns on securities. this underscores the significance of see international monetary fund, word economic outlook, april 2009, released on 16 april 2009. see european commission, economic forecast spring 2009, released on 4 may 2009. data included up until 19 april 2009. see international monetary fund, global financial stability report, released on 21 april 2009. pursuing policies that can prevent, or at least limit, the negative feedback loop between the banking system and the real