FRANKFURT (Reuters) - Europe's goal to integrate its financial markets by creating a so-called Capital Markets Union could bring with it greater risk of financial contagion that regulators would need enhanced powers to combat, the president of the European Central Bank said on Thursday.
A unified capital market, breaking down borders across the countries in the region, would bring with it many advantages, Draghi said in the text of a speech to be delivered in Milan.
Greater cross-border holdings of debt and equity would improve risk-sharing and help cushion the effect of economic downturns on households and businesses. It would also the types of funding available to companies, stimulating growth.
But Europe is still covered with a thicket of varied national rules on taxation, insolvency and corporate governance, Draghi said.
"The further integration of Europe's financial sectors may enhance systemic risk across the continent, meaning that ultimately, a single regulatory supervisor and macroprudential toolkit for capital markets should be established," he said.
"This is mostly a long-term consideration; yet we must remember that legal tools will be necessary to bring out the full benefits of deeper integration," he said.
