 Ladies and gentlemen, good morning and welcome to the ECB, where we have this year our conference about European financial integration. And on behalf of both the ECB and our co-host, the Commission, I am really delighted to welcome you to today's joint conference. In particular, it is my pleasure to welcome you, Commissioner Hill, and all our distinguished speakers and panelists from different financial market sectors and European institutions to obtain your perspectives on financial integration. This year's conference is devoted to the question, completing European financial integration, what next? And conventional monetary policy measures aimed at price stability and the Banking Union project have contributed to a recovery of financial integration since the financial crisis, which we have already described in last year's conference. The reintegration trend continued in 2015, but I'm afraid it has slowed down recently. And Philip Hartman will further explain these developments when he presents the new ECB report on financial integration in Europe later this morning. The slow pace of the positive financial integration trend brings me now to the main title and questions of this conference, what next steps are necessary to achieve further progress in financial integration or even to complete it. Let me briefly highlight the most important ones. First, the Banking Union should be completed. You may know that ECB has adopted and published its opinion on an European deposit insurance scheme at its last week. It will be the first key element of what has to be next in European financial integration. Second, a well-performing Banking Union requires further measures in the banking sector. On the regulatory side, further leveling the playing field will be key in this respect. This should be complemented by specific actions on selected priorities, such as continuing to promote progress in bringing down non-performing loans in an orderly manner over the next few years. And third, to reap the potential benefits of enhanced financial integration, we will need to pursue an European Capital Markets Union. With determination and ambition. Given the relevance of capital markets for financial integration, the Commission has dedicated its economic and financial stability and integration review on the CMU initiative. Main points will be presented by Commissioner Hill in his keynote speech. Two high-level panels in the morning and in the afternoon will discuss in greater depth the new steps that are needed to complete the Banking Union and the development of Capital Markets Union. In the afternoon, I'll be back at this stage with my speech on the importance of risk-sharing for Europe and the implications for financial stability and macro-prudential policy. I am looking forward to hear all participants' views, and I wish you reach and stimulating discussion today, which will make this conference a success, and it will start very well with the intervention of Commissioner Hill. We have the floor. Vitor, thanks very much, and I'm very glad to be here discussing financial integration, and also on the day that we're publishing our first Capital Markets Union status report. As Vitor says, that sets out the steps that we're taking to build a single market for capital in Europe, and it reports on how we've been getting on. Alongside the status report, which from now on will update every six months, we're also publishing the 2016 edition of the Economic and Financial Stability and Integration Review, FCA. So I'd like to start by talking about these two reports, and then I'll say a few words about our work to strengthen the banking union. So first, FCA, which gives us a clearer idea of the environment in which we're working, and which in future should give us a better idea of the impact on Europe's capital markets, of the measures that we're taking as part of the Capital Markets Union. What are its main findings this year? Well, if the overall global economic environment remains uncertain, the news from Europe's capital markets is more promising. Companies have been diversifying their sources of funding, turning to the corporate bond and stock markets to finance themselves. Alternative financing instruments like crowdfunding and private placement markets still only make up a small share of their financing, but that share is steadily increasing. There's also evidence that institutional and retail investors are exploring a broader range of investment opportunities to diversify their risks. In the future, as CMU measures start to come on stream, our economic analysis will give us an idea of how we're doing against the objectives of the CMU Action Plan. So is funding increasing for start-ups and non-listed companies? Has it become easier for companies to list and raise money on the public markets? Is long-term investment increasing, particularly in infrastructure? Do retail and institutional investors have more options? And how well is investment flowing throughout the EU? Now, of course, the answers to these questions won't just be a consequence of the actions we're taking as part of the CMU. That's why we need the broader analysis. But these kinds of questions do lie at the heart of what we're working to achieve with the CMU. And I think that asking them regularly should help make sure we're taking the right measures so that if they're not working as intended, we can adjust them as we go along. It'll also help keep our feet to the fire so that everyone can see how we're getting on and whether we're doing what we said we would do. Now, there's just one part of this year's review that I'd like to focus on. And that's the analysis of the private pensions market. Europe, as we all know, has an aging population. Today, for every person over 65, we've got four people in work. That figure will drop to two in work for everyone over 65 over the next 50 years. And that's a huge demographic challenge happening at the same time as in many countries, the state is reducing its role and stepping back from the provision of public services. So we need to think about how we can encourage a more developed private pensions market across Europe. And of course, as the review itself underlines, there's a close link between the size of pension funds and the development of capital markets. The bigger the private pension sector, the deeper our capital markets. Pension funds are huge institutional investors that channel funds from households to the wider economy and they deliver returns from capital market investments to anybody with a pension. By enlarging the pool of investors, these investors increase the demand for bonds and securities and they reduce the cost of raising money for companies. And pension funds can take the long view so essential for supporting long-term investments, particularly, for example, in infrastructure. But if deep capital markets need strong institutional investors, in Europe, only a few member states, countries like Denmark, Ireland, the UK, the Netherlands, Finland, have large private pension markets. Elsewhere, they're relatively small. And if we could build up a European market for simple personal pension products, that could provide the economies of scale we need to reduce cost and increase choice for savers who are putting money aside for their retirement. And that's why this is one of the areas that we've prioritized in our CMU action plan this year. And that then brings me to our CMU status report. When I reread it last week, I was struck by how much work we have already set in motion, but also, of course, how much there is still to do and how important it will be to keep the pressure up and to keep the pace up. And the report sets out the main actions that lie ahead in 2016. As you know, we've just amended Solvency 2 legislation to support infrastructure investment by insurers, and that defined infrastructure as an asset class and reduced the associated capital requirements for insurers on this type of investment by nearly a third. It's the first CMU action to have come into effect, and I hope that insurers will make the most of it. We've also written to AOPA to see whether there is evidence to support extending this treatment to a wider range of infrastructure investments, and I'm looking forward to reply from AOPA on that issue in June. Later this week, we'll be publishing a report on crowdfunding, a small but growing source of financing across Europe, and that's increasingly being used as an alternative to bank loans by some of our smaller companies. Some 3.4 billion euros were raised on European crowdfunding platforms between 2013 and 2014, and that's a year-on-year increase of about 120%. So there's plenty of scope clearly for these platforms to expand further. At the moment, they tend to operate only in one country. Some Member States have been introducing legislation specifically for crowdfunding, and here, I think, as in other areas of financial innovation, the challenge for regulators is to get the balance right between the desire to open up European markets and not to regulate too soon or too intensively, and thus risk stifling the very innovation we want to encourage. So we need to keep on top of regulatory developments and support these markets that are only just getting off the ground by sharing best practice. Next month, we'll be coming forward with a consultation to improve the passporting system for investment funds, including USITs. We need an effective passporting system for investment funds as part of our single market for capital, but it's clear that at present, smaller fund managers are struggling to offer their products in different countries. So I want to use this consultation to flush out the main barriers to funds operating in other countries so we can work out how best to overcome them and build a system where investors can get hold of the information that they need, where they can have more choice, enjoy lower charges, and where investment funds can genuinely compete across borders, not just within them. Then in June, we'll be launching a consultation to map out what we can do to support the development of a European private placement, sorry, of European private pensions market and to identify the barriers that we need to overcome. We want that market to complement not replace state and occupational pensions and to build on national systems that work well to help people plan better for their future. Before the summer, we'll be bringing forward proposals to strengthen Europe's venture capital markets to build up scale, diversity, and choice. Based on the results of a consultation that closed earlier this year, we'll amend existing rules on European venture capital funds and European social entrepreneurship funds. Here, the aim is to open up the market so that more investors can get involved and there are more companies that they can invest in. We're also planning to launch a pan-European fund of funds to encourage further private investment in venture capital markets, and we'll begin the process of getting asset managers on board to manage this fund before the summer. By the end of the year, we'll bring forward our ideas as to how we can reduce differences between national insolvency regimes, and these are obviously a major barrier to cross-border investment. That's one of the themes that came up again and again from the industry in the original consultation, which led to our action plan. We want to try to make company restructuring easier and to increase certainty for those wanting to invest across European borders, and here our proposals will seek to address the most important barriers and again, build on national regimes that are working well. So that is a snapshot of some of the actions that are in the pipeline for the next six months, and they'll build on the measures that we've already taken in the last six months, and here I won't, you'll be glad to know, run through the whole list, but just concentrate on three examples. First, to free up bank lending to the wider economy, we've made a proposal to restart Europe's securitization markets. In 2014, the securitization market was worth 216 billion euros. That's about a third of its value in 2007. And if we could revive the market to its pre-crisis average, that could provide an extra 100 billion euros of credit to the economy. So our proposal sets out criteria for simple, transparent, and standardized securitization with reduced capital requirements for securitizations that qualify. It's had strong support from the ECB. It went through the council in record time. There'll be details that we need to discuss with the parliament, of course, but I'm very clear on this, that the sooner we get this measure passed, the sooner we get more lending flowing to Europe's businesses, something in the interests of all countries and all political groups. Second, to make it easier for companies of all size to tap the public markets, we made a proposal to overhaul the prospectus directive, to create a prospectus regime that is simpler, that's faster, and that's cheaper. I want to streamline the process for companies which have already issued a prospectus and want to raise capital again. That's currently about 70% of all prospectuses. And we're proposing to get rid of the prospectus requirement completely for companies that only want to raise small amounts under 500,000 euros. The ball is now in the court of the European Parliament and the council to agree their respective positions. The signals that we're getting from both sides are very positive. I'm optimistic that negotiations will begin this summer and that we can move quickly to get this adopted and help businesses that want to expand. The third area I wanted to highlight was the green paper on financial services, financial retail services that we launched looking at them from the perspective of the consumer. Our goal here is to identify the barriers to a proper single market in this area and then knock them down. It's the kind of approach that we should be taking in any case, but in this era of digitalization and financial innovation, there's a new opportunity and actually a new urgency in overcoming national boundaries. I want European consumers to have more choice, better service and lower prices. We had a positive response to the consultation that we launched. We're now busy analyzing what we got back from that and then we'll come forward with our ideas on next steps in the summer. Now alongside this work on the CMU, alongside our call for evidence to check that the legislative framework we've put in place is working in the way that we had intended, we've also been working to strengthen the banking union. As you know, we came forward with a proposal last year to put in place a European deposit insurance scheme, EDIS, by 2024, and that's part of a broader plan to deepen economic and monetary union. It aims to give the banking union the third leg that was always intended alongside the single supervisor and single resolution authority that are now up and running. And I'd like, again, to thank the European Central Bank, the SSM, the SRB for all the work they've done to put these new institutions in place in record time. With EDIS, the plan is to move from a single system of deposit guarantee schemes to a scheme that will underwrite deposits across the whole banking union. Depositors already have the confidence of knowing that their deposits are guaranteed up to 100,000 euros if their bank goes bust, but as a banking union wide scheme, EDIS would make the banks better protected if there were larger local shocks. The plan is to build it up gradually till it's fully mutualized by 2024. It should be cost-neutral for the banks because contributions to EDIS would be deducted from what the banks pay into their national deposit guarantee schemes, and there'd be strong safeguards against moral hazard. But EDIS is part of a balanced package with measures to reduce risk going hand in hand with measures to share it. We've started by keeping the pressure up for the full application of legislation that we've already agreed, and in particular, the directives on recovery and resolution and the deposit guarantee schemes. I'm glad to say that work is now pretty much done. We'll be working to apply the international standard for the total loss absorbing capacity, the so-called TLAC, of banks in a way that works for Europe. At the technical level, the Commission, the ECB, and the SSM staff are working to test ideas and analyze their potential impact on banks and the wider economy. I mentioned earlier the work we're taking forward to overcome differences in our insolvency laws will continue our work on national options and discretions. While some of them are there for a good reason, it's important that we avoid differences in rules that stand in the way of competition and trade across the single market. Now, on this package, discussions are underway in Council and in the European Parliament. I think no one is pretending that taking forward that work is going to be straightforward, but I do think that the balanced approach that we've taken gives us the best possible basis for making progress. So these are some of the measures underway to build a single market for capital in Europe and the latest on our work to strengthen the banking union. Taken together, I think the FCA and the CMU status report show that we have built up early momentum and that there is a strong case for the action we're taking to deepen capital markets, to increase funding sources for business and to make our financial system as a whole stronger and more resilient. These are projects that are going to require sustained effort over many months and years and that's why I think we should use the FCA and CMU status report to underpin what we're doing with solid analysis and also to help keep us on the right track. Alongside our broader agenda, to expand the single market, to strengthen the banking union and to make the EU a more attractive place to invest and to do business, we have a great opportunity to strengthen the role that capital markets can play in our economy and that is an opportunity that I intend to seize. Thank you. No, the colleagues are going to do it. Good morning ladies and gentlemen and I would just like to thank Philippe and Vitor and DCB for hosting our joint conference this year. I'm just back from the spring meeting in Washington and there we discussed a number of international financial stability risks, some of which are on the rise. Political risks in particular here in Europe, in particular with the migrant crisis but also economic and financial issues remain according to estimates presented by the IMF. They asserted that a year and a half worth of growth could be wiped out if we see renewed financial tolerances. So we need to remain very alert, we're not off the crisis. And today more than ever, after eight years now of financial crisis, civil society is asking us if financial globalization has not increased inequalities in the society. And if it has not disproportionately benefited to the wealthiest and the largest multinational companies, if international risks sharing has improved sufficiently so that the wider public benefits through higher growth and better jobs and all these are legitimate questions. So today's joint conference with the ECB gives us a useful moment to reflect together where we stand in this global context as European policy makers. Those of you who remember last year as FCEA know that we devoted then a lot of attention to those aspects of financial stability and integration that matter to individual firms and households. We discussed issues such as corporate and household debt in the corporate and private household sectors and financial risks that increase as a result of long life expectancy. The list that can be said is the last 12 months have certainly confirmed that these are the topics that continue to matter today. As discussed at previous editions of this joint conference, we are still of the view that we need to rebalance and complement the EU's mostly bank-based financial system with improved access to market-based finance. And this is not to say, of course, that banks will not remain central to a modern monetary economy. Banks continue to offer many services with a highly convenient, flexible one-stop approach, particularly to SMEs and private households. However, alongside that, you see a new action plan that the commissioner just referred to and that we published on the 30th of September last year aims to tackle the remaining barriers to the provision of market-based funding both within member states and across border in Europe. Creating a single market for capital would allow EU firms to choose from a broader menu of funding options for their projects, no matter where they are located in the single market. And because it helps build deeper markets, it should also allow households to make better provision for the future, including in the context of a longer life expectation. Banks and increasingly insurers will be involved in many, if not all, stages of a better and more diversified market-based funding. In my presentation today of the FCA report, I would like to zoom in on some of the indicators and drivers of financial market development that we set out in this year's report. Monitoring financial integration has always been and will remain a tricky undertaking. And this is even more the case for monitoring progress under the Capital Market Union Action Plan. CMU raises the bar in the sense that it tackles barriers that are often not implemented in sufficient detail, at least in economic models. This is certainly the case when it comes to modeling the impact of national tax or insolvency regimes, for example, and this is what matters to firms as regards the cost of capital and to investors in the risk-adjusted returns on their investments. We are publishing the 2016 edition of the FCA review as well as the first status report on the implementation of the Capital Market Union Action Plan today. And if you'd like to have a hard copy, you don't hesitate. I think we have hundreds in the basement, so please feel free. But now let me discuss some of the content of FCA 2016 in a little bit more detail. For those of you that were used to the traditional FCA presentation, you will not see much of a change. As usual, Chapter One provides another view of how financial markets have developed over the past 12 to 18 months. Funding conditions in the European Union have remained relatively benign over much of 2015, supported as there were by an expansionary monetary policy. In particular, bank lending rates declined and in the Euro area as a whole, the volume of lending to households continued to expand while lending to non-financial corporations entered positive territory for the first time after several years of contraction. Equity funding continued to develop favorably and bondage issuance continued to benefit from the low-rate environment. At the same time, financial markets faced increasingly adverse headwinds in 2015, in particular and during the first quarter of 2016 as well. These challenges reflected a number of external factors, such as the ongoing adjustment in emerging economies towards a more moderate growth path. Continued high-tent showed political tensions or diverging monetary policies in major advanced economies as well. And these developments had both a direct and an indirect impact on how some of the indicators selected in this overview are interpreted. For instance, by changing the discount rates applied by investors under relative prices of assets. In the continued low-growth, low-yield environment, the banking sector underperformed the broader market and clearly bank profitability remains a concern with net interest margins under continued pressure due to the flattening yield curve. This limits the opportunities for bank to generate profits through maturity transformation. And also these challenges continue to weigh on the effectiveness of the bank lending channel. With domestic growth down and weakening external demand, it becomes all the more important to address the underlying causes for lower growth. For example, we can't simply not afford to keep assets locked up in bank's balance sheet when they could be more productively used and managed elsewhere. Addressing NPLs and making national rescue and recovery frameworks more effective becomes all the more important in this environment. So we are locating assets to where they can be most productive even in a market environment of falling asset prices is at the core of the CMU agenda and tackling these rigidities may also increase the effectiveness of monetary policy including non-conventional tools. It is at this point of the economic cycle that markets and lenders could best complement each other. For example, tackling differences in insolvency regimes and withholding tax should reduce the barriers for debt funds or troubled asset relief funds, the Vulture funds to buy non-performing or poorly performing assets from banks. We need a European financial ecosystem where the recycling part which is largely missing today would play a much stronger role. Ideally investors would be supported by an environment of flexible rescue and recovery frameworks without having to engage in costly and time-consuming legal actions. Recovery framework need to be strengthened throughout the financial ecosystem. And this has to happen on the side of financial institutions by bringing to fruition the new possibilities under the BRRD and ESRM regulation but also in non-financial companies and private households. We think that it is to a considerable extent due to this incomplete financial ecosystem that Europe is growing much more slowly than the U.S. So now if you turn to chart one, this chart shows the difference in GDP growth in the EU and in the U.S. And tackling this growth gap is one of the very important motivation for the CMU action plan. And that brings me to the core of our 2016 FCA review. The CMU has six key objectives, as Commissioner Hill briefly referred to a moment ago. One, finance innovation. Two, make it easier for companies to enter on race, capital, and public markets. Three, promote investment in long-term sustainable projects and infrastructure. Four, foster retail and institutional investment. Five, leverage banks' capacity to support the wider economy. And six, facilitate cross-border investing. This is an EU-wide agenda and we will monitor indicators for the EU as a whole, whatever possible. Chapter two of the review identifies indicators to monitor trends in capital markets that are relevant to these six key objectives. In many cases, country-level data are available, but in general we do not develop an expectation how an indicator will evolve in each individual member state. In the context of building a single market for capital, this would not always make sense. Certain markets may continue to specialize in certain product or services, for example, due to network effects or concentration of particle technical skills in that precise location. What matters, really, is that financial market users gain access to the entire range of funding and saving options that are being developed in the single market wherever they are located. And when we use such indicators to monitor trends in the development of capital markets, we are basing ourselves on the economic analysis of the functioning of capital markets in Europe that we published last September together with the CMU Action Plan. And this helps us to shed light on whether capital markets are evolving in a way that is consistent with expectation about the impact of the CMU initiative. These indicators should not, however, be seen as an evaluation of the impact of individual CMU actions, but they can help to assess CMU priorities and they can certainly provide a starting point for an in-depth analysis. Moreover, several factors beyond the commission's control such as economic and financial cycles will influence how capital markets develop in Europe as a whole. I would like to discuss three different types of indicators, quantity-based indicators and as a third, quantity-based indicators, price-based indicators, and third, policy and institutional indicators. When you will read chapter two, you will notice that these three types of indicators play different roles in our monitoring. Quantity-based indicators form the majority of statistics under objectives one to five. And this is because under those objectives, we do not have primarily a financial integration agenda, but equally importantly, a financial development agenda. We are looking for different forms of market-based finance to develop both in relative as well as in absolute terms. One statistic that exemplifies this very well is the following household financial assets other than currency and deposits. So if you look at chart two, you will notice the large differences in financial assets of households as a percentage of GDP across EU member states. For those of you that are Bulgarian of Slovakian, they do not figure in that chart due to data limitation. However, some of these differences just reflect differences in household wealth. And if you look only at the relative share of financial assets held by households that are not currency or bank deposits, you will note that almost all EU countries come to lie within the range of 40 to 80% of total financial assets. And this is represented by the black diamonds within the two dotted red lines in the chart that you are seeing at the moment. One of the CMU's objective is to encourage households to hold more diversified financial portfolios. If this were to materialize, it could move some member states toward the upper end of the corridor. The indicators for objective one to four present detailed information on the various sectors that invest the funds provided by households. The volumes show some industry sectors like banks and insurers at a very mature stage of development. Others, like in particular pension funds, differ more strongly from country to country, very mature in some, not so mature in others. And some, like private placement and crowdfunding, are still in the early stages compared to their potential. Overall, the objective is to see known bank assets continue to gain market share, a development that we already observed in 2015. Under objective five, leveraging banking capacity to support the wider economy, we again use mainly quantity-based indicators to monitor how another important CMU's trend of work is evolving, namely better leveraging assets in the economy via more standardized and simpler forms of securitization as well as via the covered bond markets. So if you look now at shot three, too many of you shot three will be familiar. The commission's initiative and securitization also adopted on 30 September alongside the CMU action plan aims to revive securitization without creating excessive risk for financial stability via so-called simple, transparent and standardized otherwise SDS securitizations. This should help build other underdeveloped parts of the EU financial ecosystem, allowing new high-quality assets to enter the system. Objective six of the CMU action plan is to facilitate cross-border investment. In the review, we use a mix of price-based indicators and indicators for policies and institutions to analyze how this objective is being reached. We want to tackle the specific national distortions that reduce the financial system's capacity to recycle, especially in a cross-border context. A lot has already been done in this area over the last 10 years, and we encourage actively member states to continue developing more effective rescue and recovery frameworks, work towards prettier and less costly business insolvency regimes, and allow more rapid liquidation of assets. If you look at shot four, indicator of consumption risk-sharing, a single market for capital finally should help improve consumption risk-sharing in the EU. In other words, it should help to shield households and small businesses that depend strongly on local demand conditions from shocks specific to their individual country. While national consumption risk-sharing is very high in Europe due to tightly knit social security systems, the international risk-sharing dimension could be developed further. An indicator of consumption risk-sharing in the EU shows that since 2000, typically 10 to 15% of country idiosyncratic risk has been shared in the single market. Only during the financial assistance programs of 2008, 2010 was this percentage higher. And now, ladies and gentlemen, let me turn to the last part of this year's FC. While in chapter two, we look at the EU single market as a whole, the discussions in chapter three bear in mind that country-specific policies and institutions are a big part of why people and companies use or do not use market-based finance. The first part of chapter three takes the perspective of a company looking for external funding. And it asks why equity markets are used more intensively in some countries compared to others. By building a single market for capital, we expect these differences to become less important over time. We also highlight the link between demographics and financial deepening. That is to say how particular choices by society in different EU member states shape financial markets. As Commissioner Hill mentioned, the relative importance of institutional investors and in particular pension funds can explain a significant portion of cross-country differences in the size of capital markets in the EU. Where private pension funds and public pension reserve funds are strong on the buy side, incentives are set for the sell side to use equity markets more actively. As a result, the presence of large institutional players seeking to invest pension savings is statistically associated with the size of equity markets in EU member states. Life insurers are important intermediaries of pension savings as well. And under Solvency II, in force since January of this year, insurers are, we believe, better equipped to play a more active role as investors. To conclude, ladies and gentlemen, we hope that the Capital Market Union will bring significant changes to the way that companies and infrastructure projects find financing. And we look forward to examining how these indicators evolve in the coming years. Thank you very much. And I'd like now to hand over to Philippe, who will present the ECB report. Good morning to everybody. It's a pleasure to see how numerously you came to our now good tradition of holding every year a financial integration conference together with our colleagues from the European Commission. It was also a pleasure to listen to Olivier. Each year more and more, it tends to happen, even though with two separate reports that we seem to identify very similar issues as being of priority and actually often point to very similar solutions to these issues. And while still having additional aspects that actually give rise to an interesting discussion to enhance everybody's understanding of those issues of financial integration. So I have the pleasure now to present to you the financial integration in Europe report of the ECB 2016, which just has been put together with a press release on the ECB website. So if you have your iPad with your mobile phone, so please feel free to download this while I'm speaking, but we also catered for you like my slides. So if you haven't received one, raise your arm. So then the meeting attendance will bring you a copy of my slides so that you can follow easily. So let me first, even though it's probably quite known by now, go quickly through our report. So the contents of this year's report and the subject of my presentation will be primarily the first part which we call key messages and an overview. We also enhanced identification of the main conclusions from the report by adding to each chapter an italic summary at the start where you have more in-depth summaries of the results of the specific chapters. So after the key messages, we have the usual chapter of reviewing developments in European financial integration and I will show you in a minute what are the key findings from that part. Then following our release of our opinion to the European Deposit Insurance Scheme on Thursday, we have a chapter that explains in greater depth the rationale that brought us to this opinion, the economic rationale in chapter two of this year's report. The third chapter as usual deals with all the activities, the year system and other authorities have done in this field over the reporting period which is about the year. And this time it also benefits not only from a box on financial market data standards but also of a joint product together with the commission, sorry, on the capital markets union but also of a second box on the financial market data standards which was produced together with the commission services. We have four special features in this year's report. The first very important, Olivier just raised it and you will hear much more about this afternoon in the speech by Vito Constancio, the ECB vice president who will I believe spend almost half of his speech on the topic of risk sharing. We have a special feature entitled financial integration and risk sharing in a monetary union. And if you followed the debate since the five presidents report, you will not miss the importance of this financial risk sharing topic for the functioning of EMU. Second, we have a chapter produced by ECB banking supervision on national options and discretions in the provincial legal framework which is also a topic in the dossier of the commission on strengthening the banking union. I will not say very much about it today so but I encourage you to read it, it's very rich. Third, we have another very rich chapter on recent developments in retail payments, in particular innovations in retail payments business and how the adequate coordination can be done that can lean against any potential tendencies of fragmentation in the real retail payment market. And last of all, fourth special feature is on new financial integration indicators built from our securities holding statistics and again, I will not have the time to very much dwell on that special feature but I encourage you to read it. And then you have the usual annex with all the rich set of indicators and also how we do the country groupings in the report. So after this quick overview, let me go to the meet. So here you have our FinTech, the financial integration composites. If you haven't read last year's report and the year before, these are two aggregate indicators of overall financial integration, the euro area. The red one based on prices and the blue one based on quantities. So both of them reflect the wide range of financial market segments and aggregate them up, one focusing on differentials in valuations of assets and the other on, for example, the volumes that change hands across borders, that the quantities. So you see from this chart that we had this sort of integration trend shortly before EMU, which went on and then actually peaked shortly before the financial crisis and then slumped after the financial crisis and only start in both dimensions, quantities and prices and only started to recover when in 2012, the banking union was announced and also the ECB's outright monetary transactions program that leaned against the at the time very apparent financial fragmentation tendencies. Since that time, a consistent recovery in financial integration has taken place and we amplified it for you on the left hand box which amplifies the latest two years. And you see that both the price based and the quantity based information on progressing financial integration is on a clear upward trend of reintegration here. However, very lately, about around the mid of last year, you see that both the price and the quantity component slowed. And so, and this is the interesting question here is why is it slowing and what do we read into this development? So this deceleration of financial integration that you saw on the very extreme right hand side is explained by differential developments across different market segments in the European financial system. Remember, the FinTechs reflect equity markets integration, money market integration, bond market integration and banking market integration and aggregates this up. So the results are a composite of the different developments in market segments. Given not so clear developments changes in money markets or equity markets, let me focus on banking markets and bond markets. Let me start with the banking markets. The information from banking markets continues to show the reintegration trend. So what you see on the chart is the blue line is the level of retail bank lending rates in the euro area for lending to non-financial corporations. And the gray area around it is the dispersion across euro area countries. And as you see, as of 2012 onwards, there was this convergence, reconvergence trend in the retail lending rates across the euro area. And this continued until the present day. So rates to firms and households as well continued to converge. What you don't see on the chart, there was also recently an increase in cross-bonder lending to firms that increased mildly. It's in the report, this chart. And these developments were very much supported by the unconventional monetary policy of the ECB, including the targeted long-term refinancing operations that support the banking sector very much, a gradual recovery of the economy in the euro area, and the substantial progress with the banking union that happened over the last one and two years. So this supported the reintegration trend. A development that somewhat leans against the reintegration trend, and therefore is the strongest factor that led to this deceleration is the diverging, was it a process of diverging bond yields? Less so in government bond markets, which is the red curves you see here in this chart, more so in corporate bonds and covered bonds. And as you see, the blue line should be the corporate bonds and the green line should be the covered bonds. And you saw that basically they, as of mid last year, were trending upwards and leading to this deceleration despite the continued reintegration and retail banking. This, however, these developments can be largely explained by the increasing risk aversion in global financial markets, following a slowdown in emerging markets, and diverging economic outlooks across euro area countries. So we do not interpret them as strong evidence of a significant disintegration in bond markets. And even more so recently, as you saw, so the markets didn't do us the favor to have a clear sign in one direction, there was a recent correction. The blue line goes down, the green line goes down as well. So there was a return of risk appetite in global financial markets and a continued recovery in the euro area and that helped this correction in bond markets. Looking forward against the background of this deceleration of the financial integration trend overall in the euro area, it's important that recent financial turbulences, the financial volatility you have seen quite recently, which has now somewhat disappeared, do not bring the reintegration trend that I showed you before to a halt. Against this background, it's all the more important that various policy steps that have been taken continue and new steps are taking, going forward. The new agendas go forward. What does this include, first sense? Our unconventional monetary policy aimed at price stability tends to lean against financial fragmentation tendencies, important component. Second, the single resolution fund of the single resolution mechanism has become operational at the start of this year, very supportive for financial integration in Europe. The single supervisory mechanism alongside with the commission's strengthening of the banking union is working on an important project that is subject of our special feature B, on national options and discretions in the banking regulatory framework. Remember these special options and discretions in this framework date from the time when people did not expect that banking supervision would be unified at the European level here at the ECB through ECB banking supervision, the single supervisory mechanism. But now there's a lot of work ongoing to make sure that these developments do not lead to obstacles to financial integration in Europe. Then completing the banking union through the European deposit insurance is important as the agenda on the table. And I will come to it in a minute, in a bit of more detail. And the priority implementation of the commission's action plan for the European capital markets union. And other steps that were foreseen in the 2015 five presidents report. Now at this point it's not clear whether the financial reintegration trend has tailed off, but if these agendas continue I'm optimistic that this will actually not be the case. This was the overall view on financial integration developments. Let me go to the second part of our key messages of this year's report which is a number of specific selected policy issues. Five, if I counted correctly, I will raise in this presentation. Number one, the year system, as you could read Thursday afternoon on the release of our opinion, supports the establishment of a European deposit insurance scheme. It very much welcomes the commission proposal of November 2015. Chapter two of our report gives an in-depth economic discussion and substantiates our opinion further. It points out that edis is a necessary component of a single European banking system. Second, it is also a natural complement to the single currency because many people pay with deposits and the same level of confidence in the safety of deposits irrespective of their integration goes very much together with a single currency. It seems a necessity of a single currency, of single means of payment. The European deposit insurance scheme as proposed by the commission would align control which is at the federal level through ECB banking supervision, the single supervisory mechanism, and liability which would be the European deposit insurance in depositor protection, in depositor business. So it would create a symmetry that is important for the incentives in this area. However, appropriate mechanisms that discourage risk-taking of banks originating from their depositors being insured as is actually the case in the proposal made by the commission and accompanying risk reduction efforts in the banking union need to be made as pursued in the agenda of the commission on the strengthening of the banking union. Second policy issue, capital markets. The European financial system is still more bank oriented and needs to be strengthened by further developing and integrating capital markets. And we tend to stress both sides of the coin together these days. We call for rapid progress towards the early actions in the action plan. For example, the European framework of secretization as actually was also mentioned by the previous speakers which has been quite fast in the early stages of the legislative process but sometimes in some way seems to have slowed at the later paces which we feel together with Commissioner Hill very important to be concluded swiftly. The EU system also fully supports the need for a review of the market potential framework given the market potential policy framework given the implications that the capital markets union, CMU, may have for financial stability. It requires a comprehensive approach involving a broad and supervisory parameter that also covers systemically important non-bank financial intermediaries. And Vito Constancio will also spend a lot of his speech, a second part of his speech on going in greater detail about what is precisely meant by that. Overall, CMU would benefit from a long-term vision paying significant attention to equity markets and we have heard also today more about this already and high levels of ambitions in order to achieve this extension and complement to the bank-based form of financing. This, if pursued ambitiously would enhance the financial system's resilience against chocks through additional funding sources that come in when maybe the banking sector cannot deliver as well as it would be, for example in non-stressed times. Its contribution to risk sharing which I will come to next and which already Olivier has referred to very important objective and its ability to finance the real economy. Let me come to, for one slide, to risk sharing topic. In this year's report we have made a start in looking what I would call more deeply is the quality of financial integration and what do I mean by that? This is two things I mean by that. First, that the financial integration is resilient to chocks. We anticipate when financial shocks or other shocks happen and second, the financial integration delivers the benefits that are expected from it. In particular the risk sharing that both Olivier and I mentioned. Let me start with the resilience of integration. Economic research suggests that in a financial system is more resilient and financial integration is more resilient if the system and the integration is based more on equity and I don't mean only tradeable stock markets. I also mean claims non-tradable claims in firms, FDI and other equity rather than debt. Equity tends to be more resilient than debt on average. Second, long-term debt tends to be more resilient than short-term debt. And third, retail bank lending is more resilient than wholesale inter-bank lending. And all this is actually in great depth discussed in our special feature A in this year's report. These three forms of integration more based on equity more long-term debt more retail bank lending has gained some ground in recent years but only little so. So one may want to go this process further for greater resilience of the system. I give you just one example in the chart that you see here on the screen or on your handouts which is the question of equity versus debt investments. In this chart you have in the dark blue dashed line the development of equity holdings of euro area residents as a share of total equity holdings of euro area residents. You see it's on a mild upward trend quite consistently so but at a fairly low level that reached only something like 22, 21, 22 percent on the latest data. In the light blue you have the same ratio for debt. And you see that the debt is somewhat on a milder of course by the crisis more strongly but then recovered a little bit downward trend as the cross-border debt holdings are smaller now than they used to be. As a consequence the red line, the ratio of the two is somewhat fluctuating but lately if you see on the extreme right is turning up. So the overall share of equity in cross-border holdings tends to become larger than debt holdings as a ratio. And that brings me directly to the second form of how the quality of financial integration needs to be emphasized which is the risk sharing. Let me quickly define for those of you who are not deeply into the economic technology here. So it basically means if like you saw in the last chart residents of a country hold assets also abroad it brings them in a position to smoothen consumption and income. What does that mean if your country is in a downturn and you hold assets of countries that are not fully aligned in the business cycle maybe in an upturn or in a less severe downturn you can repatriate revenues from the assets that you hold in those countries and thereby consume more than just rely on assets from this country that is in a downturn. And in the upturn you have the symmetric development. This is why cross-border asset holdings are very valuable and provide for financial forms of private risk sharing. Research again suggests that equity holdings give the greatest benefits of risk sharing. Private risk sharing across borders again also the non-tradable part inclusive but also bank retail credit is valuable for this purpose which resonates well with for example the commission's initiative on retail financial services. The risk sharing somewhat increased in the euro area with the introduction of the euro but still from a rather low level and it turns out to be quite unstable. I think you saw also the fluctuations in the chart that Olivier has shown in the report we have a similar chart and also I think Peter Constancio this afternoon will show some new research where you see that it fluctuates. So we should further improve and monitor this improvement of risk sharing in order to make it more stable and to enhance the benefits that consumers and residents of the euro area can derive from cross-border asset holdings and risk sharing. We plan to go forward now monitoring more closely these two dimensions of the quality of integration in our report as we go forward both for the resilient side and for the risk sharing side and both illustrate the importance of the capital markets union and as I said also of the retail financial services initiative. My last two policy from our key messages points from our key messages I told you that we have a joint chapter on financial market data standards a joint box. Financial integration in general would benefit from further enhancement of harmonization of financial market data standards. A comprehensive system of internationally accepted identifiers is important for this purpose. What does that mean? There should not be any security that does not have an ISIN an international securities identification number. It's still the case that there are securities that don't hold an ISIN. The issuer, guarantor and offeror of a security should be identified by the legal entity identifier the LEI. It exists already but it has to be used. Moreover the ECB supports the initiatives to develop unique transaction identifiers and unique product identifiers. So that the full picture emerges as you see in this picture from the box who trades what by looking at the LEI the UTI and UPI. Last point, retail payments integration and innovation. In the field of retail payments there is a need to ensure that innovative solutions do not give rise to fragmentation and develop Europe-wide. What are these retail financial innovations? A few recent ones include instant payments, so-called instant payments person-to-person mobile payments or contact less proximity payments. But typically these solutions start regionally. For example in a country. But there are networks. There tend to be network industries. So there is a risk that with adoption of one technology in significant obstacles to competition from other technologies emerge and therefore in an area like the euro area a common technology has a hard time developing that all consumers could use in the retail business space and create incompatibility in the European payments landscape. So it requires work at the strategic level to allow pan-European reach and achieve a single retail payments market. And the special feature C of our report discusses this in depth. So we are going to go through the Euro retail payments board which has been established to facilitate an integrated innovative and competitive Euro retail payments market in the European Union. It includes high level representatives and the demand and the supply side and is chaired by the ECB who in this case provides the good offices. And already made in all these three dimensions that you see up here, the instant payments and the endless proximity payments initiatives. Important initiatives that bring us forward towards this goal as I defined here in this last slide. Thank you very much. I think we are in time to have a few questions. We have a break at 11. So I would say if you have some questions please raise them now to Olivier or me. Thank you. Thank you very much. Thank you for the two excellent presentations and it is really good to see that we are making much progress on integration again. And I really like to shift in the presentations to the quality of integration that is really interesting. I think we have learned that short term flows are less useful for integration so more the long term equity long term bonds. What I was wondering, there is a lot of useful material on the usefulness for risk sharing within the capital markets union within Europe. My question is, are you also monitoring risk sharing with the other continents because if we are getting an older age population is it also useful to share risk with more emerging markets and are you monitoring that as well and what are the trends there? Staying on the subject of this report. In this report we have only the intra area, financial integration risk sharing developments although I can tell you also in our charts that I don't have pulled up here and I don't have them in my backup slide so I can't show you, you see lately also slide increases of asset holdings to outside the euro area which would refer to this type of risk sharing. The international developments are monitored by the ECB but more by our international department we don't have it in this report. A question to Mr. Gersang thank you very much both of you for a great presentation you were speaking about STS and the need to revive secretization in your graph you showed that 900 billion of 1.5 trillion outstanding are residential mortgage backed securities and we know that the growth of residential mortgage backed securities pre-crisis fostered asset price bubbles how does the European Commission and the European Central Bank envisage to control a reoccurrence of such asset price bubbles in the residential mortgage market thank you. Yes thank you, well that's a very good point and of course the goal is to try the most sustainable growth not the reemergence of asset price bubbles the situation is very diverse from member state to member state the ESRB has recently made a report on the situation for real estate assets in the EU and what you see is a very very diverse situation from member state to member states and yes we are monitoring it well this said STS is not so the feedback loop is not in that direction STS is not about making lending from real estate easier it's actually about freeing place in the balance sheet of banks for them not necessarily to replace it by again mortgages but maybe other types of lending and if you want my fair opinion and that is that SME loan will not happen to a sizable extent before quite some time because there are a number of prerequisites that have to be met that are not yet here but what you could see is actually that through the securitization of mortgages you would free space in the balance sheet of banks part of which could be used to further loans to SMEs that is something we expect maybe I can add to what Olivier said a good chunk of the answer to your question is in the name so pre-crisis securitization was complex these agenda is about simple pre-crisis securitization was intransparent this is about transparent and many securitizations before during the case where we spoke we are looking at more standardized and this is precisely the recipe to avoid that in these three words is precisely the recipe to avoid what has happened in the early 2000s at the same time we should mention that at this point we are rather more on the other side of the coin the market is so limited that actually the room for banks for example to free up their balance sheet for lending is there is just an option that is not really strongly available and therefore at this point I would argue as long as we stay on STS the three keywords our problem is to bring this market up somewhat more which is not the same as saying to return to the pre-crisis situation maybe a last word on this just to that prompted by the remarks from Philippe if you look at what happened to EU during the crisis during the crisis it performed really well this was not the problem and what we are bringing about is a premium standard for this so we expect that it would perform really very well in normal conditions and very well in crisis conditions so that is really what is important because on the other side institutional investors also need this type of products one last word to explain while despite all the complaints in particular for American friends we have not foreseen a third party regime in STS we will see what happens in the negotiations with the co-legislator but we want something that is safe that is controlled and we want something that we can assure the market well this is as safe as a financial instrument of this type can be and therefore this is why we have all sorts of limitations on where the underlying assets are and the supervisory regimes are subjected to I saw another question there if you would be so kind to state your name and affiliation before you speak I am Federico Cornelli from the Italian Banking Association we strongly welcome the CMU and we think it is quite a very important tool and we only have a problem with small banks in Italy we have 600 banks most of them they are very small so the problem is the sites of the issues that they can offer to the market in this moment a large number of this roughly 450 wouldn't have the sites of let's say a 1 billion issue per year so we were thinking about allowing a let's call a small bank facilitate or something similar to a re-securetization of simple transparent very safe securitization but otherwise small bank wouldn't be able to reach the market and they would be forced to sell it just to private placement not to market we know that the word re-securitization is quite difficult and synthetic is also a difficult word in these days and your effort to revitalize the market is exactly in the right direction but we wouldn't suggest not to forget the small banks because they were those that are giving a large number of credit to SMEs and families otherwise they will have a competitive disadvantage and also big banks so any kind of solution would be welcomed well some would say that the answer to your question is in the question we have many many many small banks in Europe over 6000 and they enjoy some competitive advantages and they enjoy some competitive disadvantages they are doing probably better than big banks and they are thinking that they do because they don't get they are not equipped for that unless they team up as for example the small German banks are doing unconstitute a single vehicle to deal with the stuff that they are not equipped to deal with themselves I'm not so sure that the solution to the question is in bringing down the threshold to be frank but we can think about it I would also argue that maybe the example of cooperative bank you mentioned saving banks but the cooperative banks would have established networks can enter this business but it doesn't need to be re-securitization you can also have a collective effort that is not based on re-securitization you could have it requires probably stronger coordination but it's in principle possible and covered bonds we have more questions I think there this hand so and then we have there and there oh for you to be a stronger go to university frankford and research center safe I want to get back to something that philip said in his presentation but I think the question is more directed towards Olivier you're saying that you want edius but you want to have appropriate mechanisms built in to chill moral hazard I think that's the essence of good banking policy providing back steps without creating moral hazard can you be a little bit more specific which kind of institutions you actually envisage in order to prevent that in the european context could you restate your question I didn't get it I'm not articulate I'm just saying that you're very vague on providing mechanisms that prevent moral hazard why a european european deposit guarantee scheme and I just wanted to ask whether you can be a little bit more specific what kind of mechanisms you actually think these could be in the european context well I'm not so sure for a start that deposit guarantee schemes bring about moral hazard because the I mean the underlying assumption when you trigger the use of the deposit guarantee scheme is that you liquidate the bank so and you save the depositors that are secured and you liquidate the rest of the bank so I would already challenge the fact that the existence of a small or big deposit guarantee schemes is introducing moral hazard in the system you could have a different discussion maybe depending on the conditions for resolution schemes but I want to see the case to be frank for the GSS and I think second what you provide for actually that is exemplified by what happened in the US since the creation of ADIC what you provide for is the absence of bank rents the AC was very expected ever since it was created after the Great Depression the US have not seen any meaningful bank I think that is exactly what is it for but for the rest I think if the rules are applied strictly in other words if banks that shouldn't be resolved saved on restrictions are actually won down and the GGS is used properly simply to save the insured depositors I don't think it breaks about any moral hazard I think it breaks discipline if I may compliment you again among the you are from the Goethe University the researchers who are believe in moral hazard those people the result from the literature is actually that implicit guarantees are more costly in this regard if you have a well defined deposit insurance scheme you have discipline if you have it not but then every now and then slip into a crisis where you have to bail out banks the overall amount of moral hazard that you see for example in the prices of liabilities of banks is measured by that type of literature to be higher in the implicit world than in the explicit world like the one that the edits would lift from the national level to the European level having said that there are at least two mechanisms on the table number one may be disqualification a national guarantee scheme can be excluded according to the current proposal if it doesn't obey to the rules that should to some extent could lean to some extent against some forms of moral hazard and the second is the way contributions are done you have to pay into the opposite insurance fund like you have to do it in the FDIC insurance in the US and deposit insurance fund but your contribution depends on an assessment of a range of risk indicators ranging from how capitalized you are, how leveraged you are what is the amount of non-performing in a series of other things and this contribution to the deposit insurance fund is adjusted each time the overall deposits in the banking union or in the euro areas identical increases you have a replenishment of the fund because there is a fixed target for the amount of deposit have to be covered by the fund and then it's recalculated how much every bank has to contribute so it's linked these contributions to the insurance fund are linked to the riskiness of the individual banks so I think these are pretty standard way of addressing this if I can complement on this last point this is in of you the major good sides of EDS because in a national DGS context you are actually assessing the risk of an individual bank against the universe of national banks in the EDS context you would rebase that calculation on the eurozone the eurozone plus if non-euroson members joined the banking union so in other words you would pay a contribution that is a function of your size of the risk benchmarked against the rest of the eurozone banks so in a way that way basically if you a relatively un-risky bank in a relatively risky member states the average of risk in the system is higher you would typically have to pay a higher contribution under EDS in the national DGS and your incentive to change your structure and behaviour would be greater I'm sorry that I have to close this session because Olivier and I have to go to the press briefing and he has to be on time at 11.30 for his session which is moderating so I saw some more hands I hope you have the occasion to answer your question one of the next sessions for example there will be a banking union session or other questions thank you very much