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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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C Analysis of traditional banking regulation 67

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67 C Analysis of traditional banking regulation This chapter aims at analyzing traditional banking regulation and assessing whether the underlying justification for regulation is transferable to the role of regulation in promoting the integration of European retail markets. Initially, this chapter will seek to answer the question on the justification and objectives of banking regulation based on the theoretical foundation for understanding regula- tion as laid out in Chapter B. Apart from explaining regulation theory, the previ- ous chapter already indicated that the concepts of external effects and infor- mation asymmetries provide some evidence and argument for diagnosing market failure and justifying regulatory intervention. In particular, this chapter will seek to shed light on the argument of proponents of regulation that the banking indus- try, compared with other industries, needs to be subject to particularly strict reg- ulation. According to their view, this sector presents an exceptional target of economic policy as any disruption of the banking market’s function will have negative external effects on the overall economy.46 Furthermore, this chapter investigates whether a cost-benefit analysis of regulation can contribute to the theoretical justification of regulation and seeks to determine the level of regulation density, taking Germany as an example. It briefly discusses the causes of banking crisis to determine the capacity of regula- tion to avoid bank insolvencies. Afterwards, the regulatory measures and in- struments that seek to implement the regulatory objectives are evaluated, fol- lowed by a brief overview of the regulatory organizations. The final section dis- cusses...

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