. at the same time, the number of funds – with a high degree of fluctuation – more than doubled from almost 4, 000 to approximately 9, 500. of course, the term “ hedge funds ” refers to a very heterogeneous group with a wide range of market strategies. however, all hedge funds have one thing in common, the use of high financial leverage, which they also apply by means of short selling or derivatives. the volumes of capital shifted by hedge funds therefore far exceed their reported assets. we closely observe hedge funds from a financial stability perspective for two reasons. firstly, hedge funds are borrowers from and counterparties to systemically important financial institutions. should a series of unfavourable developments arise, extensive business relationships with a risk - seeking group of investors could have a negative effect on systemically important financial institutions and therefore, in a worst - case scenario, on the functioning of the entire financial system. intense competition for lucrative ( prime brokerage ) business with hedge funds can result in large concessions being granted to this important group of customers, for example, in collateral. secondly, hedge funds can both trigger and intensify disruptions to financial markets. not only the characteristic high leverage of these funds but also the increasing investment in illiquid and complex instruments give observers food for thought. this is all the more true considering relaxed margin requirements during unfavourable market developments can give rise to margin calls with corresponding pressure to backtrack. in such a situation, tension can build up in the market and market liquidity can decrease considerably or even dry up completely. however, i would also like to stress that precisely hedge funds, as long as their positions allow, often identify such situations as good business opportunities, go against the trend and consequently stabilise the market. a range of market participants with different positions has a stabilising effect on the market. in other words, market liquidity is enhanced by the heterogeneity of market participants. however, this conclusion does not change my opinion that hedge funds need to become more transparent. without transparency how can investors and counterparties correctly assess the risk profile of a fund and make sound investment decisions? see : axel a weber, “ hedge funds : a central bank perspective ", in banque de france, financial stability review, special issue hedge funds, april 2007, p 161 - 168. i therefore believe that it was right to include the topic of hedge funds on the agenda of the german

a personal experience. in all of the discussions about new financial instruments and new market players, i have discovered that the anglo - saxon perspective is often quite different from that of continental europe. whilst the emphasis here is on risk, in the uk it is the stability of the financial system through innovations in the field of financial instruments and financial intermediaries that is promoted. i believe that both perspectives are justified. and i am also of the opinion that both of these perspectives – that is, opportunities and risks – also play a role in the evaluation of financial integration but here i am jumping forward to another section of my speech. the integration of financial markets and the banking systems are causing the structure of the financial system to change. financial markets will become broader and deeper if market players look beyond national borders more and more and find a larger selection of financial instruments, greater turnover and higher liquidity. this indicates that an integrated financial system is more capable of absorbing shocks and that it is more resilient. however, it should also be noted that disruptions in a highly integrated system can spread at a much faster pace over market segments, market players and countries, meaning that it is much easier for an unfavourable self - perpetuating momentum to develop, which is likely to be much stronger than in a fragmented financial system. v integration of european financial markets europe is making headway towards a single market for financial services. this single financial market is a cornerstone of european economic and monetary union – and let ’ s not forget that this is not just a monetary union but also an economic one. tighter integration of further sub - markets would be desirable in order to take maximum advantage of the economic benefits which a shared currency has to offer. financial integration monetary union was followed virtually overnight by integration in the unsecured money market, which in turn led to uniform market interest rates applying to all euro - area countries. since emu began, other segments of the financial market in europe have become increasingly interlinked. the closer a financial market segment has been tied to monetary policy and the larger the volume of business, the faster integration has occurred. bond markets belong to the category of particularly well - integrated markets. in the case of government bonds, most interest rates have been brought into line. the remaining interest rate differentials reflect differences in the degree of credit risk in individual countries as well as in the liquidity of specific instruments. with regard to banking services, business with major corporate customers has likewise become very well