borrowing for corporates has widened by almost 100 basis points. in addition, in countries facing economic and financial distress, bank financing conditions are tightening further for small and medium - sized enterprises. this is particularly problematic not least because of the limited access that small companies have to alternative sources of financing. for example, the spread between rates on small and large - sized loans has widened further in the case of spain and italy : in august 2012 it stood at 286 bps in spain and at 188 bps in italy, the highest levels for both countries since 2003. all in all, we can say that the renationalisation of the credit supply, coupled with funding pressures on both banks and sovereigns in certain countries, has weakened the impact of monetary policy, as partly unjustified domestic spreads keep rates applied to households and non - financial corporations higher than what would be consistent with monetary policy rates. why does financial integration matter so much for monetary policy? in order to clarify why financial integration is crucial for monetary policy, let me use a metaphor drawn from agriculture : ever since ancient times farmers have watered their fields through a complex network of canals fed by wells or rivers. whenever a canal was blocked, the farmer had to act quickly to unblock it in order to save his crop. the practice of irrigation was in fact first described in the epic of gilgamesh in the second millennium bc. credit is the water of the economy, and for the economy to run smoothly it needs to reach all its parts in the same way. central bank money is the well, banks are the canals and we are the farmers. whenever a canal of this kind is obstructed, we must find a way of restoring a smooth supply and we must act rapidly, as without adequate credit the dynamism of an economy quickly fades. and i should add that the epic of gilgamesh also describes the damage caused by a flood, a reminder that liquidity can become destructive if it gets out of control. indeed, the ecb has taken a number of measures to provide liquidity to credit institutions in the euro area, thereby alleviating their funding needs. such measures include fixed - rate tender procedures with full allotments, longer - term refinancing operations up to a maturity of bis central bankers ’ speeches 36 months, the expansion of eligible collateral accepted in the refinancing operations, and fx tenders aimed at mitigating funding costs in foreign currency. and the ecb will stand

in funding markets have led to a growing fragmentation of the banking system of the euro area along national lines. links between banks and sovereigns have grown tighter, and in some countries the credit supply has been negatively affected. the conduct of a single monetary policy has become increasingly difficult as the transmission channels have become heterogeneous. this fragmentation was affecting the whole economy of the area, and a banking union has been proposed in order to re - establish a smooth transmission of monetary policy and ensure that the credit supply meets the real economy ’ s needs. some evidence on the fragmentation of the banking system first of all, let me give you some evidence on the fragmentation of the banking system. bis central bankers ’ speeches the ecb has been continuously monitoring the degree of integration in the euro area financial markets. the latest financial integration in europe report, published in april 2012, showed several indicators pointing to rising fragmentation in various market segments as the sovereign debt crisis has escalated. in addition to the price - based indicators highlighted in the report, quantity - based indicators also continue to point to a further and significant renationalisation of euro area banks ’ funding markets. banks located in peripheral countries continued to lose market funding, while those in some other countries retained it and managed to issue bank debt at attractive yield levels. the market for secured bank funding has also been affected by the increased tensions in some euro area government bond markets. differences between bank lending rates offered to non - financial corporations and households in euro area countries reflect divergences in bank funding conditions that go beyond country - specific economic conditions. let me give you a few examples. the coefficient of variation across euro area countries of the short - term cost of borrowing for non - financial corporations has been increasing towards all - time highs. also, in some countries retail lending rates have increased markedly, while policy rates have decreased. since mid - 2011, the rate charged by the ecb on its main refinancing operations has decreased by 75 basis points but the composite cost of borrowing has decreased by a similar or greater amount in only 20 % of cases. in another 20 % of cases, it has even increased by more than 25 basis points. the dispersion of lending rates has risen both across jurisdictions and across categories of enterprises. for example, the cost of short - term borrowing for corporates in france is still around the same level as that recorded at the beginning of 2011 ; by contrast, in italy, over the same period of time, the cost of