The integration may be witnessed through the continuing tightening of bid-ask spreads, which has declined by more than 40% in the past five years and fell considerably by 7% in 1999.17 A significant increase in cross-border interbank loans and deposits allowed a smooth transfer of liquidity.18 Next to the overall increase in cross-border interbank activities, a shift from claims on banks outside the euro area to banks inside the euro area could be noticed.
The latter came close to 50% of the outstanding amount of nearly 2 trillion euros of interbank claims of EMU member countries banks in 1999.19 By contrast, the repo markets have largely remained segmented due to collateral settlement problems.20 Foreign demand for short-term securities such as treasury bills and commercial paper tends to be low, because they are more commonly used as cash substitutes than for investment purposes.