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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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E Harmonization of retail payments and the case of SEPA 133

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133 E Harmonization of retail payments and the case of SEPA 1. Relevance for retail banking integration This chapter provides an illustrative application of the conceptual model for as- sessing the benefits of EU banking regulation. It focuses on the European retail payment market, a submarket of the overall retail banking market, and on the Single Euro Payments Area (SEPA) initiative, which emerged as banking indus- try-led response to the EU price regulation in 2003. While the operation of pay- ments systems has increasingly gained public and academic attention, the focus remained on systemic risk and efficiency issues of large-value, interbank pay- ment systems.76 Systemic risk arises because the insolvency of a major partici- pant in a payment system may impose costs on other participants through a loss of liquidity or, in an extreme example, a collapse of the system itself. In this re- gard, the payment system’s public good characteristics have been the basis of any case for public policy intervention in payment systems (Ganguly & Milne, 2002, p. 2). There is a very small amount of literature available on retail pay- ment systems as a network industry, where in particular the competition- cooperation nexus and respective policy implications are analyzed (see, for ex- ample, Kemppainen, 2004a; McAndrews & Rob, 1996). However, even less ac- ademic attention has been paid to the economic and political justification of reg- ulation and public policy intervention in order to create a single market for retail payments. Recent developments in the European integration process have...

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