to some price - based integration. in terms of quantity, however, integration is still fairly low as cross - border interbank lending remains stagnant and cross - border retail lending continues to be very limited. more cross - border lending would be welcome as it could better insulate the domestic banking sectors from regional shocks, thus helping to sustain consumption or investment levels in the face of adverse shocks. 1 / 4 bis central bankers'speeches these findings have implications for the eu ’ s policy agenda. first, cross - border financial integration still falls short of the potential for cross - border private risk - sharing we would like to see in the euro area. while the united states is an ambitious benchmark in this respect, it is interesting to note that 40 % of shocks to gdp growth can be mitigated through diversification via capital markets in the united states. this compares with only 20 % of shocks to gdp growth that can be smoothed in the euro area. 3 the capital markets union ( cmu ) agenda therefore needs to be pursued with renewed vigour to foster a deeper integration and development of markets. second, the banking union is still not a reality even though two of its three pillars have been put in place. euro area - based banks have substantially reduced their cross - border claims since the crisis, and about 60 % of banks ’ total exposures are to their home countries. 4 this is worrying at a time when the political momentum behind completing the banking union is fading. importantly, this may lead banks to refocus their activities on their domestic markets as they anticipate that the banking union will remain incomplete, resulting in further fragmentation. renewed risks of fragmentation increase the need for european integration pursuing reforms through european projects is even more important in view of a possible return to fragmentation at different levels. at the global level, a lack of commitment to fully implement internationally agreed standards may hinder international activity. europe should be taking a leading role here and promoting an integrated and level playing field within its own borders and beyond by implementing the agreed reforms and maintaining a high - quality regulatory framework. this will provide confidence in the health and resilience of our markets and buttress europe ’ s credibility as a rule - maker. from a global perspective, european capital markets are currently too small and too fragmented. the cmu agenda should therefore be geared towards creating the ecosystem needed to develop more vibrant european financial markets and intermediaries that are able to compete internationally. this means both promoting policies that help

r gandhi : role of financial sector in the growth of the southern region – a question of balancing speech by mr r gandhi, deputy governor of the reserve bank of india, at finsec 2014, 2nd financial sector conclave, organised by the federation of indian chambers of commerce & industry ( ficci ), hyderabad, 14 july 2014. * * * assistance provided by shri s. arunachalaraman is gratefully acknowledged. accompanying tables can be found at the end of the speech. 1. good morning ladies and gentlemen! 2. the importance and the lead role of financial sector for economic development attracted the attention of economists, policy makers as well as executors. according to goldsmith ( 1969 : 400 ), “ mobilizing liquid resource accelerates economic growth and improves economic performance to the extent that it facilitates the migration of funds to the best user, i. e. to the place in the economic system where the funds will find the highest social return ”. 3. in the analysis of financial institutions in schumpeter ’ s work, banking was considered as one of the primary and essential factors for economic development. in the whole process of development, schumpeter ( 1933 and 1939 ) regarded the banking system as one of the two key agents ( the other being entrepreneurship ). given this impetus, it is worth mentioning that the correlation between bank credit and economic growth is resilient. 4. it is thus the financial system that has been tasked to intermediate to usher in efficient allocation of resources. banking system has, in fact, become special with its main functions of mobilizing savings of public and its efficient allocation for various productive activities and providing access to those sections of entrepreneurs who are unable to find any formal financial service. in the indian context, such allocation of resources for economic activity is done mainly by banks, but the regional rural banks ( rrbs ), the co - operative banks and the non - banking financial companies ( nbfcs ) also contribute in fulfilling this task. in india, the guidance / directions given to the banking system, with regard to the social banking in the 1970s and 1980s and with the introduction of comprehensive economic and financial sector reforms in the 1990s helped in addressing the gaps in financing economic activities. further, the introduction of financial inclusion and the related policy measures initiated both by the government of india and by reserve bank of india in recent decade enabled banks to reach the extra mile and not to distinguish between micro and small enterprises, street vendors, small