When markets function smoothly, liquidity and maturity mismatches can be managed because the asset managers deal with a large number of investors with diversified liquidity needs. In certain situations, however, the collective behaviour of investors can generate significant externalities, leading to excessive procyclicality, amplifying the cyclical properties of asset prices and credit flows.
2  Philip R. Lane: “EMU and Financial Integration”  Philip Lane : EMU and financial integration  z  Provides broadly based evidence that the first 10 years of EMU have seen a remarkable increase in financial integration  z  Many barriers to full integration still remain, but initiatives are under way to remove obstacles in the financial infrastructure  z  The Eurosystem is supporting these projects (SEPA, Target 2, T2S)  z  Challenges a number of general predictions about the macroeconomic impact of financial integration on the financial development of euro-area countries, international risk sharing and net capital movements  13 November 2008  Comments on papers by P. Lane and S. Kalemli-Ozcan et al.