Fragmentation in global financial markets: good or bad for financial stability?

This paper reviews the degree of fragmentation in various markets and classifies its possible causes. Specifically, the paper limits itself to the types of fragmentation that are of a global nature, that arise from differences in financial regulations and enforcement thereof across countries, and that possibly affect the degree of global financial stability. Despite there are no definitive conclusions, this document clarifies the debate on whether there might exist a trade-off between the degree of fragmentation and financial stability and, relatedly, whether there is scope for Pareto improvements i.e. changes that can reduce fragmentation or enhance financial stability without compromising the other objective.