16 [ slide 18 ] recent studies have confirmed this proposition which was first put forward one hundred years ago by a great austrian, joseph schumpeter. he was among the first to emphasise the catalytic role of welldeveloped financial intermediaries in the process of “ creative destruction ”. the efficient functioning of this schumpeterian capital reallocation mechanism is especially relevant in advanced economies, such as the euro area, where the promotion of entrepreneurship and openness to competition are key to raising productivity and growth. 17 recent empirical research at the ecb demonstrates that the larger and more developed the financial markets are, the greater is the efficiency with which capital is reallocated across sectors. the two charts on slide 19 [ slide 19 ] show the relationship between a measure of capital efficiency and an indicator of financial development for a sample of 65 countries and for the oecd sample of high - income countries. the higher a country scores on the vertical axis, the faster its industries respond to investment opportunities ; the horizontal axis denotes the size of the financial market : the upward slope of the line clearly indicates that capital is reallocated more efficiently in financially advanced countries. 18 levine ( 2006 ) provides a thorough review of the literature. papaioannou ( 2007 ) also surveys work focusing on studies that are mostly related to advanced economies. see, among others, fisman and love ( 2004, 2007 ), wurgler ( 2000 ), ciccone and papaioannou ( 2006 ). see strahan ( 2003 ) for a review on the us evidence, bertrand, schoar, and thesmar ( 2007 ) for the aftermath of french financial reforms of the mid - 80s and guiso, sapienza, and zingales ( 2004 ) for the italian experience. these figures draw on ciccone and papaioannou ( 2007 ) and hartmann, heider, lo duca, and papaioannou ( 2007 ) and are based on a methodology proposed by wurgler ( 2000 ). data taken from unido ( 2005 edition ). financial development is thus manifestly beneficial for growth. but what is the role of education and research in this process? it would be useful to investigate further the relationship between education and ( ict ) technological advances, on the on hand, and financial development and economic growth, on the other. conceptually, such a link appears plausible, if not perfectly clear. progress in the theory of finance and

ecb in particular attach great importance to financial integration. evidently, the financial system plays an essential role in the transmission of monetary policy and integrated european financial markets facilitate the implementation all over the euro area of the ecb monetary policy. this holds especially for markets that are directly involved in our operations : the money market, but also the bond market since the vast majority of the assets we take as collateral are bonds. another reason for our interest relates to our responsibility for the promotion of a smooth operation of payment systems. integration, particularly at the level of infrastructure, facilitates this. lastly, integration also contributes to financial stability, another key issue of interest for central banks, since a larger and more diversified financial system is better able to absorb economic shocks. a robust public policy framework as a precondition for integration ladies and gentlemen, european and national authorities have worked hard to establish a sound public policy framework for the single financial market. i believe that the main pillars of such framework are now in place for financial integration to progress even further. let me address its core elements, namely regulation, supervision and financial infrastructure. regulation first, the regulatory component. here, i have to mention foremost the impressive achievement of the financial services action plan. set out in 1999, the plan has led to the adoption of 39 community measures - the result up to now - for the legislative framework of the single financial market. of course, the impact of the fsap on financial markets will take some time to manifest itself fully, but i am convinced that the expected benefits of a modernised regulatory framework are very substantial. i will illustrate this with the new eu rules for the capital adequacy of banks and the accounting reform that is now underway in the eu. a robust capital adequacy framework for banks is a key condition for a single financial market. indeed, an efficient and stable european financial system requires that regulatory capital requirements are sufficiently aligned with banks ’ underlying risks. the authorities in the different countries should also implement the rules consistently. the need to revise the requirements is the result of an important gap that exists between the present rules and banks ’ risk management practices. the average bank of 1988, when the basel accord was adopted, is a very different animal compared with the average bank today. globalisation, the shift towards market - based financing and the speed of financial innovation have all significantly changed banks ’ risk profile. the current accord, which is based on a simple scheme of very broad risk categories, hence needed to