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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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B Theoretical framework 27

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27 B Theoretical framework This chapter provides an overview of the theoretical fundamentals required to analyze systematically banking regulation and market integration. Three theoret- ical components will be presented in detail: New Institutional Economics (NIE), the functional dimension of regulation including the Public and Private Interest Theory, and the territorial dimension of regulation comprising the Europeaniza- tion Theory. The broad field of banking regulation can be considered a problem of insti- tutional arrangements in the banking sector (Krahnen, 1993, p. 804). The objec- tive is to conduct the behavior of banks, bank employees and customers in a way that an optimally functioning banking system can be created. In this respect, the behavior-shaping effect of institutional arrangements on individuals and firms is the subject of NIE. Theoretical instruments such as the Principal Agent Theory facilitate a systematic analysis of the operating principles of institutions by in- cluding the interaction of different actors and interest groups. Hence, NIE is an essential theory component for an analysis of banking regulation and a number of preliminary institutional-economic considerations will be outlined in this chapter. Regulation theory in general deals with governmental interventions in indi- vidual economic sectors and has advanced considerably over the last three dec- ades. Given the specific conditions in a European multilevel system, this book takes a differentiated view on banking regulation by distinguishing between a functional and a territorial dimension to analyze policy implications for the inte- gration of retail banking markets in Europe. The functional aspect means that governmental...

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