Banking Supervision in Integrated Financial Markets: Implications for the EU

Figure 1: Market Shares of Foreign Banks in the EU (%)

Source: ECB data

Figure 2: Composition of Daily TARGET Transactions

Source: ECB TARGET Statistics May 2002

market structure: The daily cross-border interbank transfers are on average
significantly larger than the domestic ones while the number of transactions
is substantially smaller (see Figure 2). This finding is interpreted such that
some large banks start to act as ”money centre” banks which are active in
the whole euro area while smaller banks continue to operate nationally.⁶ As
these ”money centre” banks form the backbone of the interbank market,
financial problems of one of them could easily spread across borders particu-
larly as the interbank market is characterized by large volumes and absence
of guarantees. Hence, the interbank market is particularly prone to being a
channel for cross-border contagion in the EU.

⁶See Enria and Vesala (2002).

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