In sum, these large capital inflows should accelerate the shift in EU financial systems from a bank basis to a capital-market basis. In general, the transition to a more capital-market based financial system is expected to enhance financial stability. One prominent reason for this effect is that the efficiency, depth and liquidity of markets can be assumed to improve with their growth.
In addition, the diversity in types and sizes of institutional investors should increase. Finally, it is likely that institutional investors will process information available to the general public more efficiently than private investors. At this point, however, let me utter two words of warning. They are necessary as the growing importance of institutionalised forms of saving does not necessarily lead to increased stability.