factors have played a large role in the increased spreads and standard deviations, we also find some indication of increased liquidity risk. however, i would like to stress that all assessments we can make at this juncture are still preliminary. we are not yet out of the storm, and a more complete and thorough analysis will have to wait for some time to come. my message at this point of time is for us all to remain committed to a continuous integration process in the european financial markets, and resist the tendency to focus on national markets under tension. let us therefore not lose the momentum in these uncertain times. i now turn to the equity markets, where it is considerably harder to measure financial integration. this is not least because stock returns are less directly comparable across countries than returns in the money and government bond markets. notwithstanding this difficulty, our assessment shows signs of continuously increasing integration, and currently, there is no indication that this trend has been affected by the financial crisis. for example, euro area residents doubled their share of euro area cross - border holdings over the past ten years to slightly below one third of their total equity holdings. moreover, according to our indicators, integration here seems to advance faster at the european than at the global level. at the same time, country - specific factors still play a significant role in the equity markets, not least because of the continued fragmentation in the post - trading infrastructure. a paneuropean infrastructure for securities clearing and settlement in the eu would therefore certainly provide new impetus for further integration. equity markets offer me a nice entry point to make you aware of a new type of indicators that we are currently developing. financial integration is an important, but not the only factor that contributes to the efficiency of the financial system. there are indeed other relevant factors, such as the degree of financial development or the quality of the framework within which financial markets operate. in the ecb we are now in the process of extending our analysis from financial integration to the development of financial markets. we understand financial development broadly as a process of financial innovation and organisational improvements. this includes developments that reduce asymmetric information ; increase the completeness of markets ; add possibilities to engage in financial transactions through contracts ; reduce transaction costs ; and increase competition. the idea to extend our work from financial integration to financial development goes back to the ecofin council ’ s invitation in 2006 to “ monitor and assess relevant institutional features that hinder the efficient functioning of the financial system ”. one of these financial development

companies. under the prevailing legislative structure the supervisory responsibilities in case of banks, development finance institutions ( dfis ), and microfinance banks ( mfbs ) falls within legal ambit of state bank of pakistan while the rest of the financial institutions are monitored by other authorities such as securities and exchange commission and controller of insurance. in pakistan, while the overall assets of the financial sector have increased from rs. 5. 202 trillion in 2005 to rs. 11. 107 trillion in 2011, the share of the financial sector in terms of gdp is very low at 57. 4 percent. in 2011, banks held 74 percent of the financial assets while the share of nbfis was only 4. 7 percent of the total financial sector assets which was around 7. 6 percent in 2005. the low financial sector to gdp ratio and nbfis shadow banking : scoping the issues : a background note of the financial stability board, 2011. bis central bankers ’ speeches declining share in financial sector assets clearly underscores the need for financial sector development and diversification of financial sector assets to attract investors with different return expectations and risk appetite and channelize financial resources for the economic development of the country. therefore, today ’ s conference is very important and we should use this opportunity to understand the key bottlenecks in the way of financial sector development and also come up with concrete measures to address these shortcomings in a sustainable manner. alan greenspan identified the role of nbfis in strengthening an economy, as they provide “ multiple alternatives to transform an economy ’ s savings into capital investment [ which ] act as backup facilities should the primary form of intermediation fail ”. 2 on the other hand, the nbfis offer an alternative to typical commercial banking saving - investment products. however, in pakistan, nbfis other than investment banks and leasing companies which offer saving and investment products on a relatively small spectrum need to develop appropriate and affordable products to increase its market share. the key negative outcome of this is that there remains limited access to funding resources and relatively higher risk avenues to earn spreads. here i would like to briefly touch on the major constraints that the nbfi sector in pakistan is beset with : first, although there has been an increasing effort by nbfis to broaden the range of their business activities and product base, thereby diversifying their revenue streams, the sector is yet to make a breakthrough in this regard. second, the sector is fragmented and each nbfi