Challenges stemming from integration Two major challenges for authorities in charge of financial stability emerge from the common wholesale banking system: vulnerability to common shocks and potential contagion of major problems across many countries, should such problems arise. Let me take the issue of common shocks first. Clearly, integration opens up a wide range of opportunities for growth and contributes to increasing the resilience of the system. It brings along a wider range of funding sources and – on the asset side – the degree of diversification of exposures increases. But integration also renders financial institutions more exposed to common shocks. For the largest banks, area-wide risks affecting specific lines of business increasingly matter more than the home country-related risks. One way of illustrating this point is to take a look at banks' share price development. Since the beginning of the year, the share prices of almost all major European banks have declined. The 30 largest banks have lost, on average, around 25% of their value. The overall deterioration in global macroeconomic conditions and financial market volumes has affected all institutions, as banks' profit outlook has deteriorated following the likely increase in provisioning needs and reductions in income from market-related activities. However, the stock market changes for these 30 banks range widely from a small plus to very significant minuses of over 50%. In line with the notion that the home-country risks have lost in importance, banks' nationality is no longer a very relevant determinant of the size of the stock market reaction.
Let me make some remarks also about the supervisory arrangements at the national-level. After the reform carried out in the United Kingdom to establish a single all-encompassing financial supervisory authority outside the central bank, proposals to set up a single supervisory authority have been put forward in several euro area countries. Tendencies to separate supervision from central banking have also emerged. In almost all euro area countries, central banks have traditionally been in charge of supervisory functions. In some euro area countries, adjustments have already been made. In Austria, an all-encompassing financial supervisory authority will be established, but the central bank will still be in charge of certain banking supervisory tasks. In Luxembourg, a supervisory authority has been created outside the central bank. Changes are also underway or being discussed in Germany, Belgium, Ireland, and Finland. The Eurosystem has recently expressed the view that continuing to have national central banks in charge of supervisory responsibilities would offer clear benefits. This would be an appropriate response to the challenges triggered by the euro, as it would enhance the capability to monitor risks to financial stability from an area-wide perspective. In any alternative arrangement, the involvement of central banks in prudential supervision and ample information sharing would be necessary in order to achieve the necessary interaction between the two bodies. A central bank supervisor is in a position quickly to assess systemic risks.