##tised assets remain on the balance sheet of the originating bank. for a more detailed discussion see chapter ii of ecb ( 2008 ), financial integration in europe, april. see popov, a. and p. roosenboom ( 2008 ), “ venture capital and innovation in the european bio - tech industry ”, ecb mimeo. despite having grown substantially over the past ten years, venture capital financing in most euro area countries remains a fraction of venture capital financing in the uk or, especially, in the us. while average euro area venture capital financing in the late 1990s was larger than in the uk, this is no longer the case. within the euro area, only finland has levels of venture capital financing that can rival those of the united states. a second - tier group of countries ( belgium, germany, france, ireland and the netherlands ) have similar amounts of venture capital financing. finally, early - stage venture capital financing remains limited in austria, greece, italy and spain. it is not clear whether the apparent weakness of the european venture capital sector is caused by ( 1 ) a lack of capital supplied, perhaps reflecting lack of liquidity in still somewhat nationally segmented venture capital markets, ( 2 ) legal, regulatory and tax barriers, or ( 3 ) a shortage of viable exit options for venture capitalists through liquid specialised equity markets. 5. implications for central banks from the point of view of central banks, developments in the financial sector have a special role that distinguishes them from other services. in so far as financial developments influence the long term output and employment growth, they can affect the wide range of indicators and tools that central banks use to monitor and model the behaviour of the economy. more specifically, changes in the banking sector may affect the monetary transmission mechanism. a more developed and efficient financial system is likely to contribute to a more effective, harmonised and smooth transmission of the single monetary policy. in addition, the stability of the financial system is also a crucial concern for central banks and for the economy as a whole. in principle, deeper and more complete financial system should provide a number of social benefits, including better risk hedging and risk diversification that render economies less vulnerable to disturbances. however, there have long been concerns that some financial developments may lead to increased speculative behaviour, market volatility and, ultimately cause or exacerbate financial crises. securitisation provides an interesting illustration of how financial developments may influence the traditional monetary transmission mechanism and raise questions

i am grateful to angela maddaloni, david marques, alex popov and rolf strauch for useful comments. see taskforce of the monetary policy committee of the european system of central banks ( 2006 ), competition, productivity and prices in the euro area services sectors, ecb occasional paper no. 44. within the services sector, over the last few decades there has been a slight increase in the importance of financial intermediation relative to other services sub - sectors. data show that in 2005 financial and business services represented the sub - sector accounting for the largest share of value added. their relative importance for employment is more limited, as a result of their relatively high productivity compared to other services sub - sectors. indeed, in contrast to other sub - sectors, financial services are substantially more exposed to international competition and the use of information and communication technologies ( ict ). besides, the liberalisation of this sector started in the eu earlier than regulatory reforms in other services. as a result, the financial sector has been subjected to the combined of pressure of : ( 1 ) increased competition from capital markets and foreign financial institutions, and ( 2 ) earlier deregulation. the combination of technological progress and market structural changes should have spurred productivity growth in the euro area financial industry. nevertheless, data from the eu klems growth and productivity accounts spanning the 1996 - 2005 period show that labour productivity growth in financial services was rather disappointing over this period, especially if compared with their corresponding performance in the us. indeed, labour productivity growth of the financial sector was slightly negative in the euro area over this decade, while it outperformed the economy as a whole in the us. thus, in the euro area the financial services sector seems to have to some extent contributed to two important developments in labour productivity over this period : ( 1 ) the sharp slowdown in labour productivity growth in the euro compared to the period 1980 - 1995 ; ( 2 ) the emergence of a significant labour productivity growth gap between the euro area and the us. weak productivity developments in the financial services are also evident if we look at total factor productivity growth, a factor generally believed to have played a key role in determining the emergence of a significant output growth gap between the us and the euro area over 1996 - 2005. indeed, over this period the financial services sector provided a significant negative contribution to euro area output growth, compared with a marginal positive contribution in the us. it should be noted that, while the negative rate of growth of tfp