Global institutions are required to regulate integrated markets that raise the risk of financial contagion, spillovers and financial instability, European Central Bank President Mario Draghi said on Wednesday.
In a speech at an event at the Bank of England, Draghi said, "Cross-border markets create a community of interest from which each member stands to benefit. But they also heighten shared exposure to the potential detriment of all."
"For markets to be truly free, therefore, they need governance," he added.
In the euro area that has a single currency, it is clear that a fully integrated banking and capital market and a higher degree of institutional integration to protect that market is of great importance, Draghi said.
Further, the ECB Chief said stronger common governance of the banking sector in countries that share a currency is required to boost confidence in the bank deposits.
While the benefits of a single market with a single currency are commensurately higher, the costs of the market fragmenting are commensurately higher too, he warned.
A fully-equipped single resolution mechanism and a uniform deposit insurance scheme are needed to ensure stronger common governance and deeper institutional integration in the Eurozone, Draghi added.
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