This is because the tendency to invest more in international markets – as reflected in the surge in crossborder portfolio flows – has been accompanied by the tendency of households to shift part of their savings towards riskier domestic assets, as the sharp rise in countries’ domestic market capitalisation reveals. What can we say about the future? We should expect that home bias will continue to decline, most likely at a slow pace, because investors need to perceive that diversifying their global portfolio more and more on a global scale will reduce risk; for that they need to become more familiar with the international environment. 7  See for example French and Poterba (1991), Coval and Moskowitz (1999) and Huberman (2001). 8  See Solnik (1974). 9  De Santis and Gérard (2006) provide the methodology here adopted to compute home bias measures. 4  BIS Review 43/2006  Impact of EMU on portfolio reallocation and financial integration Did EMU play a role in the reallocation of capital worldwide and on financial integration? To answer this question, we need to remind us what a monetary union implies. The elimination of the exchange rate risk is the first obvious implication, which is also a feature of other fixed exchange rate regimes. But the fundamental difference is that – when EMU was established – Member States committed to irrevocable conversion rates of their currencies.
The third discussion forum I would like to mention is the reference group for the payment system called together by the Riksbank and consisting of representatives from VPC AB, Bankgirocentralen, Stockholm Stock Exchange, the major banks and the Swedish Bankers’ Association. Part of the work in these working groups has entailed charting the flows and the infrastructure of the payment system. The charting process began as an internal project at the Riksbank, with a general review of the payment system’s basic conditions, agents and services. This has since functioned as a basis for discussion and as reference material for other working groups to make a more in-depth survey of some representative payment services. One example is the flow chart of the Swedish Social Insurance Administration's pension payments that I have spoken of today. Other payments that have been charted are credit transfers and payments for securities. The general conclusion reached by most participants in these discussions is that each organisation has a responsibility for supplying its services in accordance with the agreements it has with its customers. This responsibility includes solving crises internally and cooperating with those the organisation is dependent on to be able to supply their services. The discussions have also increased awareness that everyone in the chain must have a reasonable level of business continuity and crisis recovery planning and that cooperation may be necessary to safeguard common interests. It has not yet been decided how these discussions will continue.