related to other concepts such as financial integration, efficiency and stability. more precisely, financial development refers to the process of financial innovation, institutional and organisational improvements that reduce asymmetric information, increase the completeness of markets and contracting possibilities, lower transaction costs, and enhance competition. in particular, financial development is complementary to financial integration in reducing market frictions and fostering financial market efficiency. this chart [ see slide 10 ] presents a simple framework to summarise the determinants of the performance of the financial system and its links to the performance of the broader economy. there are three levels of analysis. the first level concerns the fundamentals of the financial system that do not change very fast, such as legal and regulatory frameworks or features of the economy ’ s financial structure. the second level relates to the performance of the financial system, that is, its efficiency and stability. the third level focuses on the performance of the economy as a whole, that is, economic growth and price stability. as you can see, financial integration and financial development are processes that influence the relationship between the fundamentals of the financial system and its performance. a selection of indicators is provided in this special feature to monitor financial development and efficiency [ see slide 11 ]. these indicators can be grouped into general and marketspecific indicators. an example of general indicators is the size of capital markets, which aggregates the sizes of stock, bond and loan markets, as a percentage of gdp. on average, euro area capital markets tend to be smaller than those in the united kingdom and the united states. let me continue with some examples of market - specific indicators. this chart [ see slide 12 ] shows the notional amounts of nominal outstanding interest rate derivatives, that is, forward rate agreements, options, and swaps, by currency. by using derivatives, market participants can better manage risks, lock in the future price of the underlying assets and even alter the terms of the underlying financial contract. as a consequence, the allocation of capital and risk across time and space is improved. the chart clearly shows that the most active interest rate derivative markets are those denominated in euro and in the us dollar, with outstanding amounts in 2006 of 86 and 75 trillion euro, respectively. focusing on the evolution of the interest rate derivatives market over time, this chart [ see slide 13 ] shows that the us - dollar denominated interest rate derivatives grew the fastest, with the amount outstanding increasing sixfold. the second fastest growing

main findings. the report consists of three chapters [ see slide 2 ]. the first chapter sets out the ecb ’ s assessment of the state of financial integration in the euro area. this assessment is based on a set of quantitative indicators we have developed. the second chapter contains in - depth analyses of selected issues relating to financial integration. the final chapter of the report gives an overview of the activities of the eurosystem in 2007 aimed at advancing the integration and development of financial markets in europe. ii. the state of financial integration in europe let me start with the ecb ’ s assessment of the state of financial integration in the euro area which covers the money, bond, equity and banking markets, as well as the underlying market infrastructures. the tables on this slide [ see slide 3 ] and on the following one summarise our assessment of the degree of integration in the various market segments. two key facts should be highlighted : first, financial integration is generally more advanced in those market segments that are closer to the single monetary policy ; and, second, it depends on the degree of integration of the respective market infrastructures. these conclusions confirm the findings of last year ’ s report. in particular, the unsecured money market has been fully integrated since the introduction of the euro, and the repo market is also highly integrated. the full integration of the large - value payment systems has been instrumental in achieving this result. government bond markets have also become considerably integrated. similarly, the corporate bond market received a major boost with the introduction of the euro and has subsequently achieved a high degree of integration. some progress has also been made in the integration of euro area equity markets, although the euro area securities infrastructure that underpins both bond and equity markets is not yet sufficiently integrated. however, efforts to reduce these barriers are currently under way. turning to the banking markets [ see slide 4 ], integration has advanced well in the fields of wholesale banking and capital - market activities. the integration of the retail banking market has, however, been slow and hampered by the fragmentation of the european payment systems. after this broad overview, allow me to illustrate some specific developments in particular market segments, also with reference to the recent episode of financial turbulence. in this context, a pertinent question is whether the financial market turmoil has had an impact on the degree of integration in various market segments. first, with regard to the nearly fully integrated money markets, the recent financial turmoil has undoubtedly left a mark on the cross