Skip to main content

Restructuring Financial Regulation in the European Monetary Union

Abstract

This article argues that present financial regulatory arrangements within the European Monetary Union are not adequate either to preserve stability or to foster financial integration. Reform of financial regulation should concentrate on •establishing clear procedures for crisis lending and management, with the European Central Bank at the center; •preparing the ground for more centralized supervisory arrangements in banking, insurance, and securities; and •establishing and consolidating an active domestic and European Union-wide competition policy that limits local market power and national champions that are too big to fail.

This is a preview of subscription content, access via your institution.

References

  • Allen, F., and D. Gale. “Financial Contagion.” Journal of Political Economy 108 (2000), 1-33.

    Google Scholar 

  • Bagehot, W. Lombard Street: A Description of the Money Market. London: H. S. King, 1873.

    Google Scholar 

  • Barth, J.R., D.E. Nolle, and T.N. Rice. “Commercial Banking Structure, Regulation, and Performance: An International Comparison.” Economic Working Paper 97-6, Office of the Comptroller of the Currency, Washington, D.C., 1997.

    Google Scholar 

  • Berger A., A. Kashyap, and J. Scalise. “The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been.” Brooking Papers on Economic Activity 2 (1995), 55-201.

    Google Scholar 

  • Berger, A., R. Demsetz, and P.E. Strahan. “The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future.” Journal of Banking and Finance 23 (1999), 135-194.

    Google Scholar 

  • Berger, A., R. DeYoung, and G. Udell. “Efficiency Barriers to the Consolidation of the European Services Industry.” WP 2000. 37, Finance and Economics Discussion Series. The Federal Reserve Board, Washington.

  • Bernanke, B.S. “Clearing and Settlement During the Crash.” Review of Financial Studies 3 (1990), 133-151.

    Google Scholar 

  • Besley, T., and P. Seabright. “The Effects and Policy Implications of State Aids to Industry: An Economic Analysis.” Economic Policy, 28 (1999), 13-53.

    Google Scholar 

  • Bini Smaghi, L. “Who Takes Care of Financial Stability in Europe?” In: Open Issues in European Central Banking, chapter 2. New York: Macmillan, in press.

  • Cafagna L., and S. Sciolli. “Ruolo e responsabilità delle istituzioni: l'autorità antitrust,” In: Fondazione Rosselli, ed., Quali banche in Italia Mercati, assetti propietari e controlli. Milano: Edibank, 1996.

    Google Scholar 

  • Calomiris, Ch. The Postmodern Bank Safety Net: Lessons from Developed and Developing Countries. Washington, D.C.: American Enterprise Institute, 1997.

    Google Scholar 

  • Calomiris, Ch., and Ch. Kahn. “The Role of Demandable Debt in Structuring Optimal Banking Arrangements.” American Economic Review 81 (1991), 497-513.

    Google Scholar 

  • Caprio, G., and D. Klingebiel. “Bank Insolvency: Bad Luck, Bad Policy, or Bad Banking.” Mimeo, The World Bank, 1996.

  • Cordella, T., and E. Levy Yeyati. “Public Disclosures and Bank Failures.” Discussion Paper No. 1886, CEPR, 1998.

  • Corrigan, E.G. “Reforming the U.S. Financial System: An International Perspective.” Quarterly Review of the Federal Reserve Bank of New York 15 (1990), 1-14.

    Google Scholar 

  • Cybo-Ottone, A., and Murgia, M. “Mergers and Sharcholders Wealth in European Banking.” Associazione Bancaria Italiana, 1998.

  • Chiappori, P., C. Mayer, D. Neven, and X. Vives. “The Microeconomics of Monetary Union.” In: Monitoring European Integration: The Making of Monetary Union. London: CEPR Annual Report, 1991.

    Google Scholar 

  • Danthine, J.-P., F. Giavazzi, E.-L. von Thadden, and X. Vives. Monitoring European Integration: The Future of European Banking, London: CEPR, 1999.

    Google Scholar 

  • Demirgüç-Kunt, A., and E. Detragiache. “Financial Liberalization and Financial Fragility.” Mimeo, The World Bank, 1998.

  • Di Noia, C., and G. Di Giorgio. “Should Banking Supervision and Monetary Policy Tasks Be Given to Different Agencies” International Finance 2 (1999), 1-18.

    Google Scholar 

  • Diamond, D., and P. Dybvig. “Bank Runs, Deposit Insurance and Liquidity.” Journal of Political Economy 91 (1983), 401-419.

    Google Scholar 

  • Duisenberg, W., Introductory statement delivered on the occasion of the presentation of the ECB's Annual Report 1998 to the European Parliament, Strasbourg, October 26, 1999.

  • Dziobek, C., and C. Pazarbasioglu. “Lessons from Systemic Bank Restructuring: A Survey of 24 Countries.” Working Paper 97/61, International Monetary Fund, 1997.

  • European Central Bank. “Possible Effects of EMU on the EU Banking System in the Medium to Long Term.” February 1999.

  • Fatás, A. “EMU: Countries or Regions Lessons from the EMS Experience.” European Economic Review 41 (1997), 743-751.

    Google Scholar 

  • Folkerts-Landau, D., and P. Garber. “The ECB: A Bank or a Monetary Policy Rule.” In: M. Canzoneri, V. Grilli and P. Masson, eds., Establishing a Central Bank: Issues in Europe and Lessons from the US. Cambridge: Cambridge University Press, 1994.

    Google Scholar 

  • Forni, M., and L. Reichlin. “National Policies and Local Economies: Europe and the United States.” Discussion Paper No. 1632, Centre for Economic Policy Research, 1997.

  • Favero, C., X. Freixas, T. Persson, and Ch. Wyplosz. “One Money, Many Countries.” CPER Monitoring the European Central Bank 2 (January 2000), 74.

  • Freixas, X. “Optimal Bail Out Policy, Conditionality and Creative Ambiguity.” Mimeo, 1999.

  • Freixas, X., and B. Parigi. “Contagion and Efficiency in Gross and Net Interbank Payment Systems.” Journal of Financial Intermediation 7 (1997), 3-31.

    Google Scholar 

  • Goodfriend, M., and R. King. “Financial Deregulation Monetary Policy and Central Banking.” In: W. Haraf and R. M. Kushmeider eds., AEI Studies, No. 481, Lanham, MD: UPA, 1988.

    Google Scholar 

  • Goodhart, C., and D. Schoenmaker. “Should the Functions of Monetary Policy and Banking Supervision be Separated?” Oxford Economic Papers 46 (1995), 539-560.

    Google Scholar 

  • Haynes, M., and S. Thompson. “The Productivity Effects of Bank Mergers: Evidence from the UK Building Societies.” Journal of Banking and Finance 23 (1999), 825-846.

    Google Scholar 

  • Hughes, J., W. Lang, L. Mester, and C.-G. Moon. “Efficient Banking under Interstate Branching.” Journal of Money, Credit, and Banking 28 (1996), 1045-1071.

    Google Scholar 

  • Hughes, J., W. Lang, L. Mester, and C.-G. Moon. “The Dollar and Sense of Bank Consolidation.” Working Paper No. 98/10, Federal Reserve Bank of Philadelphia, 1998.

  • IMF. International Capital Markets, World Economic and Financial Surveys. 1999.

  • Jacklin, C., and S. Bhattacharya. “Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications.” Journal of Political Economy 96 (1988), 568-592.

    Google Scholar 

  • Kane, E.J. “How Market Forces Influence the Structure of Financial Regulation.” In: W.S. Haraf and R.M. Kushmeider, eds., Restructuring Banking and Financial Services in America. Washington, D.C.: American Enterprice Institute, 1989.

    Google Scholar 

  • Matutes, C., and X. Vives. “Imperfect Competition, Risk Taking and Regulation in Banking.” European Economic Review 44 (2000), 1-34.

    Google Scholar 

  • Mayes, D., and J. Vesala. “On the Problems of Home Country Control.” Discussion Paper No. 20/98, Bank of Finalnd, 1998.

  • Mayes, D. “A Market Based Approach to Maintaining Systemic Stability: Experiences from New Zealand.” Discussion Paper 18/97, Bank of Finland, 1997.

  • Meltzer, A. “Financial Failures and Financial Policies.” In: G.G. Kaufman and R.C. Kormendi, eds., Deregulating Financial Services: Public Policy in Flux. Cambridge, MA: Ballinger, 1986.

    Google Scholar 

  • Neven, D., and T. von Ungern-Stenberg, “The Competitive Impact of the UBS-SBC Merger.” Cahiers de Recherches Economiques, No. 9805. Lausanne: DEEP, 1998.

    Google Scholar 

  • Padoa-Schioppa, T. “EMU and Banking Supervision.” Lecture at the London School of Economics, February 24, 1999.

  • Peek, J., E.S. Rosengren, and G.M.B. Tootell. “Does the Federal Reserve Have and Informational Advantage? You Can Bank on It.” Working Paper No. 98-2 (a), Federal Reserve Bank of Boston, 1998.

  • Peek, J., E.S. Rosengren, and G.M.B. Tootell. “Is Bank Supervision Central to Central Banking?” Working Paper No. 98-2 (b), Federal Reserve Bank of Boston, 1998.

  • Postlewaite, A., and X. Vives. “Bank Runs as a Equilibrium Phenomenon.” Journal of Political Economy 95 (1987), 485-491.

    Google Scholar 

  • Prager, R., and T. Hannan. “Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry.” Journal of Industrial Economics 46 (1998), 433-452.

    Google Scholar 

  • Pratti, A., and G. Schinasi. “Financial Stability in European Economic and Monetary Union.” Working Paper No. 86, IFS, Department of Economics, Princeton University, 1999.

  • Resti, A. “Regulation Can Foster Mergers, Can Mergers Foster Efficiency? The Italian Case.” Journal of Economics and Business 50 (1998), 157-169.

    Google Scholar 

  • Rochet, J.-C., and X. Vives. “Coordination Failures and the Lender of Last Resort.” Mimeo, 2000, IAE, Barcelona.

  • Rochet, J.-Ch., and J. Tirole. “Interbank Lending and Systemic Risk.” Journal of Money, Credit, and Banking 28 (1996a), 733-762.

    Google Scholar 

  • Rochet, J.-Ch., and J. Tirole. “Controlling Risk in Payment Systems.” Journal of Money, Credit, and Banking 28 (1996b), 832-862.

    Google Scholar 

  • Schmidt, R., A. Hackethal, and M. Tyrell. “Disintermediation and the Role of Banks in Europe: An International Comparison.” Journal of Financial Intermediation 8 (1999), 36-67.

    Google Scholar 

  • Sutton, J. Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution on Concentration. Cambridge, MA: The MIT Press, 1991.

    Google Scholar 

  • Vander Vennet, R. “The Effect of Mergers and Acquisitions on the Efficiency and Profitability of EC Credit Institutions.” Journal of Banking and Finance 20 (1996), 1531-1558.

    Google Scholar 

  • Vander Vennet, R. “Determinants of EU Banks Takeovers: a Logit Analysis.” Working Paper No. 97/29, University of Ghent, 1997.

  • Vives, X. “Banking Competition and European Integration.” In: A. Giovannini and C. Mayer, eds., European Financial Integration, Cambridge: Cambridge University Press, 1991, pp. 9-31.

    Google Scholar 

  • Vives, X. “The Supervisory Function of the European System of Central Banks.” Giornale degli Economisti e Annali di Economia 51 (1992), 523-532.

    Google Scholar 

  • Vives, X. “Lessons from European Banking Liberalization and Integration.” In: The Internationalization of Financial Services, S. Classens and M. Jansen eds., Kluwer Law International (UK), 2000, 177-198.

  • Vives, X. “Central Banks and Supervision.” Forthcoming in A. Santomero, S. Viotti, and A. Vredin, eds., Challenges for Modern Central Banking Kluwer, 2001.

  • White, W.R. “The Coming Transformation of Continental European Banking.” Bank for International Settlements Working Paper series 54 (1998).

Download references

Author information

Authors and Affiliations

Authors

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Vives, X. Restructuring Financial Regulation in the European Monetary Union. Journal of Financial Services Research 19, 57–82 (2001). https://doi.org/10.1023/A:1011133401170

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/A:1011133401170

  • supervision
  • financial integration
  • Europe
  • monetary union
  • regulatory separation
  • competition policy