low as three basis points in early 1999 and has since decreased to between one and two basis point. this success has been sustained in particular by the high degree of integration of the largevalue payment systems and our target system. the launch of our new single technical platform, london economics ( 2002 ), “ quantification of the macroeconomic impact of integration of eu financial markets ”, report to the european commission. see “ the role of financial markets and innovation for productivity and growth in europe ”, ecb occasional paper no 55, forthcoming. see the bis quarterly review, march 2007, table 21b. the data underlying the, at present, 42 indicators are published and updated twice per year on the ecb ’ s website. see at http : / / www. ecb. int / stats / finint / html / index. en. html. target2, in november this year will promote further financial integration, in particular through a harmonised service level, a single price structure, and a harmonised set of cash settlement services. it is, however, also a fact that the euro area short - term debt securities market has witnessed only a limited degree of cross - border activity. this may partly be due to the fact that short - term debt securities issued by euro area residents have very similar risk characteristics and therefore offer little scope for international diversification. our respective indicator, which gives the share of short - term debt securities issued by euro area residents and held by other euro area residents, shows a rising trend – from 7 % in 2001 to over 12 % in 2005 – but the absolute numbers are small when compared to the corresponding indicators for the bond and equity market. with respect to the absolute size of the short - term debt securities market, i would like to emphasise the short - term european paper ( step ) initiative. the step initiative promotes the development of a pan - european short - term paper market through market players ’ voluntary compliance with a core set of standards encompassed in the step market convention, which was signed in june 2006. by the end of march this year, 35 step - compliant programmes, amounting to €201 billion, had been launched under the step label. the ecb regularly produces statistics on yields and volumes in the step market and publishes them on its website. 7 with respect to bond markets, euro area cross - border holdings of long - term debt securities have increased strongly – from about 10 % at the end of the 1990s to nearly 60 % in

crisis, and the tendency in iceland both to adopt international and eu regulations without critical analysis of iceland - specific risks and to base supervision to a significant degree on mechanical checks of adherence to those regulations. let me expand a bit on the eea part, as it is highly relevant to my topic. the eea agreement provides a legal and regulatory framework based on european union directives, including a framework for free movement of capital and provision of financial services. the underlying principles are those of home licensing for operation anywhere in the area and of a level playing field for competition where size and location are not supposed to matter. this european “ passport ” enabled the icelandic banks to operate throughout the eea, including through branches in other eea countries. some of the topics discussed in this speech are dealt with at greater length in the following two sources : gudmundsson, mar & thorsteinn thorgeirsson ( 2010 ). “ the fault lines in cross - border banking : lessons from the icelandic case. ” suerf studies – 2010 / 5 contagion and spillovers : new insights from the crisis. on - line source : http : / / suerf. org / index. php? option = com _ k2 & view = item & id = 177 & itemid = 133 and gudmundsson, mar ( 2010 ). “ the fault lines in cross - border banking ”, speech at the fibe meeting in bergen on 7 january 2011. on - line source : http : / / www. bis. org / speeches / sp0702525. htm bis central bankers ’ speeches i will discuss the flaws in this setup as regards banking later in my remarks, but in order to provide a proper perspective on the story, i must make two points. first, it goes against the grain of the underlying principles of the european passport to consider the size of banks relative to gdp as a metric for concern, as is now rightly in fashion. second, we should see this more in the nature of a necessary rather than a sufficient condition, and it does not exonerate icelandic banks and authorities of blame for their part in the story. the financial crisis revealed major fault lines in cross - border banking, the most important being large foreign currency balance sheets with significant maturity mismatches but with limited lender of last resort facilities in foreign currency. the nature and magnitude of this phenomenon were not well understood before the crisis. 2 maturity mismatches are, of course