Financial Market Integration in Euro Area —— Development and Obstacles —— - PowerPoint PPT Presentation

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financial market integration in euro area development and obstacles l.
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Financial Market Integration in Euro Area —— Development and Obstacles —— PowerPoint Presentation
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Financial Market Integration in Euro Area —— Development and Obstacles ——

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  1. Financial Market Integration in Euro Area——Development and Obstacles—— Zhang Jikang and Miss. Wang Xinhui Center for European Studies, Fudan University April 7~8, 2004

  2. Financial Market Integration in Euro Area • Brief Review • State of play in different market segment • Brief introduction of two data analysis index • Remaining obstacles • Conclusion

  3. Brief ReviewDefinition and characteristics of integrated financial market • Removal of the relevant frictions and obstacles • Facing a single set of rules • Having equal access • Being treated equally

  4. Brief ReviewHistorical development • Funding of EMU • Removal of capital controls in1991 • Start the single currency in January 1999 • Fulfillment of FSAP( Financial Services Action Plan ) in 2004

  5. State of play in different market segmentIn money market • Factors promoting money market integration • Common monetary policy • TARGET, the common payment system • Common information and communication system • Accessible guarantee and collateral • Swaps and forward rate agreements (FRAs)

  6. State of play in different market segmentIn money market • Increased money market financing Money Market Financing in Euro Shared More Than Doubled

  7. State of play in different market segmentIn bond market • Increased bond issue • High degree of openness • Active market participants • Increased liquidity

  8. State of play in different market segment In equity market and stock market • Historical character of the Europe equity market • Dependency on the funds intermediated by banks • Relatively higher bank loans to corporate and lower stock market capitalization**

  9. Estimated by authors (2001)

  10. State of play in different market segment In equity market and stock market • structural change towards more market-based finance • Emerging integrated electronic trading platforms with less state exchanges • Registered record growth • Whole new markets • A number of Europe-wide equity indices established

  11. State of play in different market segmentIn equity market and stock market • structural change towards more market-based finance Time-Varying Integration Euro Area Average GARCH 12-Month Rolling Estimates

  12. State of play in different market segmentIn equity market and stock market • structural change towards more market-based finance From the table above, we can see • become highly integrated only since 1996 • taken over from the US as the dominant market in Europe

  13. State of play in different market segmentRelated payments, clearing and settlement infrastructures • Mature infrastructure system • Simplification of payment system: Target • Simplification of dealing currency: Euro • Simplification of clearing and settlement system

  14. State of play in different market segmentRelated payments, clearing and settlement infrastructures • Structural change in the trading platform Number of Settlement System Comparison and Trend

  15. Brief introduction of two data analysis indexThe efficiency of investment return • Less or no cross-market arbitrage opportunities • The law of one price • The expected same return of investment

  16. Brief introduction of two data analysis indexExchange rate volatility From Time-Varying Integration Euro Area Average GARCH 12-Month Rolling Estimates, we can see • Volatility in integration of stock markets remains • A low degree of integration during 1992-93 and 1995 • A very rapid increase between 1996-99 • A leveling off in 1999-2000

  17. Brief introduction of two data analysis indexExchange rate volatility Time-Varying Integration Euro Area Average GARCH 12-Month Rolling Estimates

  18. Remaining obstaclesImpediment in market • Dealing preference • Growth prospect and expected return, instable bond issuance* • Transaction risk and cost though lower exchange rate risk • Home bias which resulted in the remained cross-border and industrial entry barriers such as retailing commercial bank industry

  19. Remaining obstaclesPolitical hindrance • Fulfillment of FSAP in 2004 • Current structure of regulation and supervision • Policy coordination among member states • ECB policy implementation • Different Fiscal Policies and ECB common monetary policy

  20. Conclusion Though obstacles remaining, the trend towards a deeper, integrated and more mature financial market in Europe can not be reversed and will continue.

  21. Thanks