Financial integration in the euro area has continued to recover, although lately at a moderating pace, according to the European Central Bank’s (ECB) latest annual report.

The report cited convergence of retail bank lending rates across countries as one of the examples of the improving financial integration. In addition, the Single Resolution Fund also become operational.

However, due to offsetting developments in different market segments the trend has slowed since spring/summer 2015.

In the period under review, the degree of convergence of euro area bond markets largely stabilised around its 2014 levels.

Bond yields of individual euro area sovereigns showed a degree of divergence which was similar to that of 2014.

Despite some notable increases since the second half of 2015, the cross-country dispersion of corporate bond yields remained moderate, the report revealed.

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ECB in its press statement said: "Looking forward, it is important that recent financial turbulence, for example as transmitted from the stock markets of emerging market economies or from economic and political uncertainties across euro area countries, do not bring the process of financial re-integration to a halt.

ECB vice-president Vítor Constâncio said: "We can reach the economic benefits of transforming the financial system, if the European Capital Markets Union is ambitious. At the same time, however, the perimeter of macroprudential supervision and regulation needs to be extended in order to address new financial stability risks associated with such a process."

The re-integration trend that followed substantial financial fragmentation associated with the financial and sovereign debt crises between 2007 and 2011 took off when the European banking union and the European Central Bank’s Outright Monetary Transactions (OMT) framework were announced in 2012.

It continued when two important pillars of the banking union started to operate, namely the Single Supervisory Mechanism (SSM), which was integrated in the ECB, in 2014 and the Single Resolution Mechanism (SRM) in 2015.