The ECB reports that financial integration in the euro area has strengthened since late 2022, especially in debt markets and interbank lending, but equity market integration remains weak.
Financial integration in the euro area has improved markedly since late 2022, supported by lower asset price dispersion and EU policy initiatives such as the Next Generation EU programme, according to the European Central Bank (ECB).
Indicators of financial integration, both price-based and quantity-based, have risen above their historical averages. Cross-border activity has increased across market segments, enhancing risk sharing and resilience.
Most notably, debt markets and interbank lending have seen significant strengthening. Cross-border holdings of debt securities, including sovereign bonds, have increased due to better fundamentals and normalization of the Eurosystem balance sheet. Interbank lending has become more active, indicating a less fragmented money market environment.
The role of non-bank financial institutions has expanded, diversifying financing channels and increasing cross-border risk sharing. Overall, consumption risk sharing indicators suggest the euro area has become more resilient to economic shocks.
However, the report highlights that the euro area’s financial system still falls short of supporting long-term growth, innovation, and competitiveness. External financing remains subdued due to high interest rates and weak investment sentiment. Structural fragmentation continues to hinder equity market integration and the efficient allocation of savings across borders.
Equity market integration has declined since 2022, with stagnating cross-border equity investments and low intra-euro area foreign direct investment. Households tend to hold savings in low-yield deposits, and much equity investment is directed outside the EU. This home bias limits risk capital availability for innovative firms and affects long-term competitiveness.
The report emphasizes the need to advance integration, scale, and efficiency within the single market to improve the euro area’s financial sector competitiveness, including banking. These findings support initiatives like the European Commission’s savings and investments union, aiming to channel savings into productive investments through a more integrated financial market.
The ECB will present the report at the high-level conference on European financial integration on 7 May 2026. For media inquiries, contact Esther Tejedor at +49 172 5171280.
