The European Central Bank (ECB) said there is a risk that the financial integration process in Europe will slow down as a result of the financial and economic crisis.
It noted that, although significant progress in European financial integration has been made over a longer period of time, signs of retrenchment within national borders have recently emerged in certain financial market segments.
"Vigilance should be exercised to ensure that national emergency measures to address the crisis do not have an unintended negative impact" on financial integration, the ECB said in its annual report on the subject.
The ECB also said that financial integration and financial development are normally complementary and mutually reinforcing.
Integration fosters financial development by enhancing the competitive stimulus, and financial development helps to overcome frictions and cross-border barriers that prevent full integration, the ECB stated.
The ongoing crisis has shown that financial innovation can be implemented in ways that reduce transparency and lead to excessive risk-taking, ultimately harming financial integration.
An example of this is the pursuit of certain types of securitization through the creation of sizeable off-balance sheet structures.