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Competition Policy in Banking in the European Union


We examine the evolution of competition in banking in the EU in its interaction with regulatory developments and the parallel evolution of the application of competition policy in the sector. The crisis of 2007–2009 interrupted the normalization of competition policy in banking that started in the early 1980s; the crisis also reversed some advances in competitive pressure that had occurred due to market integration and the introduction of the euro. Competition policy has to cope post-crisis with a sector that is systemic and subject to regulatory failure. There is ample room to improve both competition and stability in banking by refining regulation.

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Fig. 1

Source: ECB

Fig. 2

Source: ECB

Fig. 3

Source: ECB

Fig. 4

Source: World Bank


  1. See Vives (1991) for an early analysis.

  2. See European Commission (2005).

  3. See Figure 2.5 in Vives (2016).

  4. Branches in the euro area have been reduced by 17% since 1997, which represents the closure of almost 32,000 branches. Employment has fallen less since 2008: a 12% reduction as of 2017.

  5. Gual (1999) studies the effect of deregulation in the market structure of European banking in the period 1981–1995 and finds that concentration increases notably with deregulation.

  6. From 1998 to 2017 the number of credit institutions in the EU has fallen by 32%. The restructuring took place in the years of crisis from 2008, with a drop since then of 26%, with the greatest decreases of 70% in the Netherlands, 43% in Spain and 42% in Greece.

  7. See Baer and Mote (1985).

  8. Average HHIs of MSA (urban markets) decreased 9.5% from 1980 to 2017 and the average HHIs of non-MSA counties (rural markets) also decreased 11.5% in the period. The fall took place until the end of the 2000 s, remaining stable in later years. We are grateful to Robert Adams at the Fed for providing the data.

  9. According to ECB (2017a), cross-state M&A transactions in the USA represented between 31 and 52% of the total number of transactions between 2000 and 2016. The equivalent share in the EMU was between 5 and 19%.

  10. See Danthine et al. (1999) and Barros et al. (2005). Campa and Hernando (2006) find that the cumulative abnormal returns of M&As that were announced in the EU in 1998–2000 are lower in regulated industries such as banking and that those abnormal returns are in fact negative for cross-border M&As: a sign of the obstacles they face.

  11. See ECB (2017b).

  12. See Barros et al. (2005) and Van Rixtel et al. (2007).

  13. See ECB (2017a).

  14. The small market share that foreign banks have in several European countries is partially explained by the type of M&A that has taken place, where domestics have predominated.

  15. Claessens and Laeven (2004)—in a sample of 50 countries in the period 1994–2001—show that most banking markets are monopolistically competitive with H between 0.6 and 0.8. The authors also highlight that typically entry barriers and not concentration is what determines competition: greater foreign entry and fewer restrictions on entry or activity yield more competitive outcomes. In this line, several papers have shown that concentration need not be a good proxy for competition (Casu and Girardone, 2009; Carbó et al. 2009; Liu et al. 2013; etc.). At the same time it is worth noting that competition measures in the sector should consider also the two-sided market nature of the banking business (see, e.g., Section 4.1.4 in Vives (2016)).

  16. The negative value of Germany's Lerner index is associated to the fact that its return on equity (ROE) is negative and of high absolute value in 2008 (− 12.2%) and 2009 (− 4.7%) and very low in all the considered period.

  17. See Vives (2016, ch. 5) for an extended discussion of the issue.

  18. For example, in the Netherlands, the Competition Act of 1998 has applied to the banking sector since 2000; also in Italy since December 2005 competition policy has been enforced in the banking sector by the general competition authority rather than by the Bank of Italy (see Carletti et al. 2015).

  19. See Baso et al. (2018).

  20. In the Netherlands, the Minister for Economic Affairs can overturn a merger decision of the competition authority if this conflicts with the decision of the supervisory authority. The situation is similar in Germany, where the Economics Minister may overturn a blocking decision by the Cartel Office for reasons of general welfare (upon consultation with the Monopoly Commission). In the UK, the government may approve a merger against the advice of the competition authority on financial stability grounds. In Italy, until the 2005 reform the competition authority was requested to issue only an opinion on the proposed M&A with the supervisor in charge for merger review. In France, bank merger reviews have been integrated in common competition law since 2003 and in 2008 exclusively under the Competition Authority -- which is required to consult the relevant regulator. In Portugal, the banking system has been subject to merger control since 2003, although with a delay of 5 years relative to the other sectors. See Carletti and Hartmann (2003) and Carletti et al. (2015).

  21. See Vives (2005).

  22. The EC can request all relevant information from the national supervisory authorities in mergers in the banking sector of Community dimension; but according to the European Merger Regulation (Article 21(3)) Member States may block a merger to protect financial stability (considered a “legitimate interest”) in the domestic market. This was the case, for example, in Portugal (case Banco Santander/Champalimaud group in 1999), and Italy (cases BNL/BBVA in 2005; ABN AMRO/Antonveneta in 2005; Unicredito/HVB in 2006); this contrasts with the attitude of the UK in the merger of Santander/Abbey or the attitude of the Netherlands with the three- way acquisition and split of ABN AMRO. See Carletti and Vives (2009).

  23. See Kapsis (2012) for a survey on this issue.

  24. Three basic conditions are required: The bank must be failing or be likely to fail (the decision upon this matter is taken by the ECB); no alternative private solutions can exist; and it must be necessary to the public interest (the SRB has power to decide when these two last conditions are met).

  25. Reductions of market power are measured by the Lerner Index and net interest margins in a dataset of 124 countries; 41 of them experienced banking crises between 1996 and 2010.

  26. Berger and Roman (2015) show that TARP in the United States enhanced both the market shares and market power (according to the Lerner index) of protected banks because they were perceived to be safer.

  27. See Perotti and Suarez (2002).

  28. See Vives (1992) for an early proposal of the elements of a banking union for Europe.

  29. See Chiappori et al. (1991), Danthine et al. (1999), and Dell'Ariccia and Marquez (2006).

  30. The example of the forced closure of BCCI (Bank of Credit and Commerce International) in 1991 illustrates this point, since it was authorized in Luxembourg but many of its customers were abroad: The bank was present in 78 countries.

  31. See European Commission (2018).


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The authors are grateful for the comments of two anonymous referees, Lawrence J. White (General Editor of the Review of Industrial Organization) and Kern Alexander (the discussant of this paper presented at the Conference “Celebrating 25 years of the European Union Single Market”). We are grateful to Hugo Ferradans and Giorgia Trupia for excellent research assistance. The authors acknowledge financial support from the Spanish Ministry of Economy, Industry and Competitiveness (Project ECO2017-84858-R-AEI/FEDER, UE for Maudos and ECO2015-63711-P for Vives).

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Maudos, J., Vives, X. Competition Policy in Banking in the European Union. Rev Ind Organ 55, 27–46 (2019).

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  • Antitrust
  • Concentration
  • Financial stability
  • Market integration

JEL Classification

  • D40
  • G21