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Creating and Governing an Integrated Market for Retail Banking Services in Europe

A Conceptual-Empirical Study of the Role of Regulation in Promoting a Single Euro Payments Area

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Matthäus Markus Sielecki

The creation of the Economic and Monetary Union (EMU) has accelerated the harmonization process of regulation and governance in Europe. However, the integration of fragmented retail banking markets still represents a difficult task for regulators. This book investigates the role of EU policy in creating a single market, addressing explicitly questions on the choice of policy measures to overcome barriers to integration persistent in these markets. Based on an analysis of different regulatory theories, the author develops a conceptual framework and illustrates its applicability to the case of the Single Euro Payments Area (SEPA) initiative. The fact that a single market has not yet evolved is less a sign of market or coordination failures than of government failures. The author concludes that, despite the political resistance from national interest groups, regulatory barriers need to be removed first to provide a level playing field for banks and a safe legal environment for consumers.

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Foreword ........................................................................................................... VII List of tables ..................................................................................................... XIII List of figures .................................................................................................... XV List of abbreviations ........................................................................................ XVII A Introduction .................................................................................................... 1 1. Research problem and relevance ................................................................ 1 1.1 Financial market integration and economic development in Europe ...... 1 1.2 Reasons for fragmented retail banking markets in the EU...................... 3 1.3 Financial market integration and banking regulation .............................. 4 1.4 Research questions and objectives .......................................................... 6 2. Research scope and definitions ................................................................... 7 2.1 Definition of retail banking services ....................................................... 7 2.2 Definition of banking regulation and supervision ................................. 11 2.3 Defining integration and single market for the purpose of the study .... 13 2.4 Institutions and governance ................................................................... 15 3. Research status and planned approach ...................................................... 16 4. Research strategy and design .................................................................... 18 4.1 Research strategy ................................................................................... 18 4.2 Research design ..................................................................................... 19 5. Methodology and structure ....................................................................... 20 B Theoretical framework ................................................................................. 27 1. New Institutional Economics .................................................................... 29 1.1 Characterization of New Institutional Economics ................................ 29 1.2 Concepts of New Institutional Economics and reference to banking regulation ...................................................................................................... 33 1.3 Transaction costs in banking regulation and their measurement .......... 34 1.4 Theory on agency relationships ............................................................. 37 2. The functional dimension of regulation .................................................... 41 2.1 Normative theory and market failure .................................................... 41 2.2 Positive theory and government failure ................................................. 46 2.3 Coordination failure ............................................................................... 50 2.4 Contrasting functional banking regulation approaches ......................... 53 3. The territorial dimension of regulation ..................................................... 56 3.1 European Integration Theory ................................................................. 58 3.2 Europeanization Theory ........................................................................ 61 X C Analysis of traditional banking regulation ................................................... 67 1. Traditional explanations for banking regulation ....................................... 67 1.1 The inability of depositors to monitor banks ........................................ 68 1.2 The risk of a systemic crisis .................................................................. 69 1.3 Cost-benefit assessment...

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