A Conceptual-Empirical Study of the Role of Regulation in Promoting a Single Euro Payments Area
C Analysis of traditional banking regulation 67
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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