BIS Review 36/2007  1  financial innovation, and to the institutional and organisational improvements in a financial system that reduce asymmetric information, increase the completeness of markets, add possibilities for agents to engage in financial transaction through (explicit or implicit) contracts, reduce transaction costs and increase competition. Progress in financial development can obviously also occur in perfectly integrated markets.
Therefore, by speeding up the reallocation of capital from declining to evolving and promising industries – the Schumpeterian process of “creative destruction” – both financial integration and financial development positively influence the efficiency of a financial system, ultimately leading to a higher potential for economic growth. The introduction of the euro has already brought about important benefits resulting from increased financial integration.