It affects the way financial decisions 2  BIS central bankers’ speeches  are made, including decisions relating to savings and spending, borrowing and lending, investment and profit distribution, and it is relevant to all economic agents, be they households, businesses or governments. Soundness of financial governance is a critical prerequisite for the sustainable growth of any economy. Having said that, we also have to recognise that the process of economic growth itself is an outcome of a system that is highly complex and adaptive, and that a country’s economy, polity and society – and the institutions that underpin each of these – are embedded within a complex network of interdependencies. Therefore, there cannot be a one-size-fits-all prescription of what constitutes good financial governance for all economies. Nevertheless, I do believe that we can recognise the presence or absence of good financial governance based on broad characteristics. In this regard, three key inter-related features are typically present when there is good financial governance. Firstly, effective financial governance ensures that financial decisions take into account all externalities arising from the decisions. Financial decisions often have consequences that are not fully borne by the decision maker. Financial decisions that may appear rational at the individual level, may in fact be collectively unsustainable. For instance, corrupt practices may be optimal for the individual perspective, but they are clearly detrimental to the welfare of society and the economy.
More than 40 European bank groups have a substantial part of their operations in more than three European countries. Names such as Unicredit, Barclays, Fortis and ING are all examples of banks in the forefront of this development. The internationally-active banks are moreover increasingly offering services to households and smaller companies. The integration process has been particularly evident in our own neighbourhood. Nordea and Danske Bank have substantial market shares outside of their respective home countries. With the exception of Iceland, it is in Nordea’s case a question of market shares of more than 10 per cent in all of the Nordic countries. Swedbank and SEB are dominant actors in the Baltic region. But financial integration is now also increasing rapidly in other parts of Europe. The timing of my speech could hardly be more appropriate. Only in recent weeks the media has reported on farreaching plans for a merger between British Barclays and Dutch ABN Amro, two banks which together would become one of the world's largest players in this sector. Parallel to this cross-border integration process there is also another type of integration within the banks. It is becoming increasingly common for these groups to organise themselves so that they in practice function as one bank instead of a number of independent bank companies. What drives the banks to change their organisation is the efficiency gains obtained through greater centralisation and specialisation.