yves mersch : post - trade harmonisation and financial market integration in europe closing remarks by mr yves mersch, member of the executive board of the european central bank, at the conference “ post - trade harmonisation and the integration of financial markets : a joint effort ”, organised by the european central bank and the european commission, frankfurt am main, 19 march 2013. * * * ladies and gentlemen, we have come to the end of today ’ s very intense programme. i now have the pleasure of sharing with you some thoughts on the main messages that have emerged in the course of today. financial integration remains at the core of the european agenda. for the future of europe, it is important that the single market project is taken forward with the full determination of all of us, even in times of difficulty. as president mario draghi remarked this morning, “ in times of severe economic challenges, it is particularly important that our commitment to achieve a truly single european market is reaffirmed ”. from the eurosystem ’ s perspective, financial integration is of great importance. first, it is vital for the single monetary policy of the euro area : monetary policy is implemented through the financial system, which has to be as efficient as possible in order to guarantee a smooth and effective transmission of monetary policy impulses. a highly integrated financial system ensures that impulses diffuse homogeneously across the whole euro area. second, financial integration has implications for the stability of markets. integration results in increasing interconnections and cross - border activity. a higher level of integration will therefore be beneficial for our economy, enabling investors to find profitable investment opportunities whenever and wherever they arise. it will also enhance competition among financial intermediaries and among financial infrastructures and, as a consequence, reduce the costs of intermediation. however, highly interconnected systems could also be more prone to systemic risks. to avoid those risks, integration initiatives are being undertaken which place a very strong emphasis on the safety and resilience of financial markets and infrastructures. let me now turn to post - trade harmonisation, the central theme of this conference. the harmonisation of market practices, rules and standards in post - trading is a necessary component of financial integration. inefficiencies and barriers in clearing and settlement make market access difficult for investors and for issuers. the european securities market cannot be said to be fully integrated if post - trade arrangements are not harmonised, ensuring safety, full competition and the absence of barriers across

see issing, o., “ monetary and financial stability – is there a trade - off? ”, speech at conference on “ monetary stability and the business cycle ”, bank for international settlements, basel, 28 – 29 march 2003. see ecb monthly bulletin article, april 2005, “ asset price bubbles and monetary policy ”. bis central bankers ’ speeches by contrast, a more effective first line of defence will support a leaning - against - the - wind approach, both : because other policy domains reinforce the thrust of monetary policy, and because any trade - offs that result are likely to be more favourable. in this context, it may be noted, for instance, that the notion that accommodative monetary policy sustains “ zombie banks ” is rarely heard in the us context, in view of the stronger institutions for resolving banks and resolving non - performing loans. overall, we are now seeing progress being made in the euro area and internationally that will improve the first line of defence going forward. the basel iii agenda has tackled several of the weaknesses of pre - crisis banking landscape, while countries have made important strides in terms of operationalising new macro - prudential instruments. meanwhile, the euro area has moved ahead in its efforts to establish a banking union and the tools available to policymakers to clean up after crises are being progressively strengthened, although difficulties persist in reducing legacy non - performing loans on bank balance sheets. there is thus still work to be done, but the institutional environment has become more conducive to a leaning - against - the - win strategy than before the crisis. the early indications already suggest it has increased the resilience of the financial sector to shocks. despite this improved first line of defence, implementing a leaning - against - the - wind approach will remain challenging though. it will require us to identify and model latent financial stability risks, as well as the potential future cost of letting such risks fester at a systemic level. as noted in the past, this task was hampered by crucial knowledge gaps as the common macroeconometric frameworks were not well designed to capture the interactions between financial and real variables. 19 these knowledge gaps, in turn, led the economics profession to underestimate the potential cost that systemic financial crises may impose on broader macroeconomic prospects. also on this front, we have seen some progress in economic research, especially in integrating real - financial feedback loops into the standard toolkit for macroeconomic analysis, which has enhanced the operational feasibility