A new Report published by the Centre for Economic Policy Research (CEPR) examines the changes that have taken place in banking in the European Union over the last few years. The authors of the third title in CEPR’s Monitoring European Deregulation (MED) series ‘Integration of European Banking – The Way Forward’ note that perhaps the most significant development that has taken place in this sector has been the launch of the Financial Services Action Plan (FSAP).
The goal of the FSAP is to create a single integrated market in Financial Services in Europe. This Report reviews progress that has been made in eliminating regulatory and non-regulatory barriers to trade in banking services and the degree to which European banking markets have become integrated. The authors document a variable level of integration in banking. It is high in wholesale banking and in certain areas of corporate finance, modest in relationship aspects of banking, low in retail banking, and patchy and heavily dependent on foreign financial institutions in the accession countries.
The authors argue that the increase in competition brought about by the introduction of the euro and more recent deregulation measures has been relatively small. To them the surprising feature of Europe’s liberalization and deregulation in banking is not that the integration is incomplete. The surprise is that market integration in some areas falls so short of expectations. The Report argues that care needs to be taken not to attempt to correct perceived low levels of integration through excessive harmonization of regulation in areas in which only modest amounts of integration can be expected. However, the authors reject the use of arguments about ownership and relationship banking to justify the retention of artificial barriers to integration. The Report recommends that further efforts are required to eliminate these barriers through:
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