Euro area financial integration improves despite ongoing fragmentation, ECB report shows

The European Central Bank (ECB) has published a report on financial integration and structure in the euro area, highlighting significant improvements since late 2022. Indicators of financial integration, based on price and quantity measures, have risen above their historical averages, supported by EU policies such as the Next Generation EU programme.

Cross-border activity has increased across market segments, enhancing risk sharing and resilience. Notably, debt markets and interbank lending have seen the most visible strengthening, with increased cross-border holdings of debt securities and more active interbank lending due to excess liquidity redistribution.

The role of non-bank financial institutions has expanded, diversifying financing channels and boosting cross-border risk sharing. Consumption risk sharing indicators suggest the euro area is more resilient to economic shocks, facilitating smoother adjustments across countries.

However, the report notes that the euro area’s financial system still underperforms in supporting long-term growth, innovation, and competitiveness. External financing remains subdued amid high interest rates and weak investment sentiment. Equity market integration has declined since 2022, with stagnating cross-border investments and low intra-euro area foreign direct investment. Many euro area households prefer low-yield deposits, and a significant portion of equity investments are made outside the EU.

This persistent home bias and fragmentation limit the effective allocation of savings and reduce risk capital availability for innovative firms, impacting long-term competitiveness. The ECB emphasizes the need to advance integration, scale, and efficiency within the single market to strengthen the euro area’s financial sector, including banking.

The findings support the European Commission’s savings and investments union initiative, 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.