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Looking back over the last decade it can be said with some justification that sig­ nificant progress has been achieved on the way towards fully integrated financial markets in Europe. The 1993 Internal Market initiative and the Euro introduction in 1999/2002 constitute important milestones. The integration process has further been intensified by market developments like the surge in mergers and acquisi­ tions and by technological innovations like internet based distribution. As a result, some market segments today do no longer have a national character. Nevertheless, this success should not obscure the fact that integration of financial services markets is still a long way from the level of integration that exists within national markets. Particularly for retail financial services national borders still constitute a considerable de facto barrier. The absence of frequent direct cross­ border links between financial service providers and retail consumers holds true despite the fact that the Euro has made product comparisons easier and that the internet has reduced information costs to a considerable extent.



Financial Integration Within the European Union: Towards a Single Market for Insurance

There is overwhelming agreement among market observers that the European insurance industry has made a ground-breaking step towards a single insurance market by the implementation of the Life and Non-Life Third Insurance Directives on 1 July 1994. Among the EU countries since then legal barriers to cross-border insurance business have been minimised.
Rainer Beckmann, Carsten Eppendorfer, Markus Neimke

Financial Integration in Europe and Banking Sector Performance

Legally, virtually all direct barriers to the cross-border activities of banks in Europe have been abolished in the past decades. Hence, Europe might be considered one of the most integrated banking markets world-wide. However, there is ample evidence suggesting that financial market integration de facto is smaller than one might expect in fully integrated financial markets.This study tries to give an answer to three questions:
Has integration promoted cross-border banking?
What are the segmenting barriers to a full integration of financial markets?
What have been the effects on the performance of banks?
Claudia M. Buch, Ralph P. Heinrich

Market Access Strategies in the EU Banking Sector — Obstacles and Benefits Towards an Integrated European Retail Market

Over the last years, competition in the European banking sector has intensified considerably. The following factors have been decisive for that evolution: the liberalisation of the European financial sector, technological progress as well as an amplified diversification of savings and assets.The introduction of the Euro goes along with an accelerated integration of the market for financial services and leads to a further increase in competition and structural changes in the banking sector (Deutsche Bundesbank, 1999, Galati and Tsatsaronis, 2001). However, timeframe and depth of this structural change vary noticeably between the different sections of European banking. While the money market and the market for wholesale products (wholesale banking) already form a common European market, there still is an extensive segmentation of national markets for retail products (retail banking). Responsible for this low degree of integration in retail markets are a number ofnatural barriers, such as language or culture, as well aspolitically inducedmarket accessbarrierssuch as regulations or taxation, which make cross-border trade in financial services more difficult (ECB, 1999a). Further deregulation and harmonisation towards an integrated European retail market are suitable to increase customer benefits by fostering product diversification and lower prices.
Carsten Eppendorfer, Rainer Beckmann, Markus Neimke

The Benefits of Creating an Integrated EU Market for Investment Funds

The European investment fund industry is looking back at a period of high growth. Assets of European UCITS1 almost tripled from 1.21 trillion Euros by end 1995 to 3.56 trillion by end 2000. In the same period the ratio of European investment funds (UCITS and other types) assets relative to GDP has grown from 23% to 52%. On a per capita basis this represents an increase from 4,000 Euro in 1995 to 11,600 Euro in 2000. 2 Even in the depressive phase at the stock exchanges in the first half of 2001 the industry proved its robustness — and could still realise a moderate positive growth rate of 2% in terms of UCITS’ net assets (FEFSI, 2001b).
Friedrich Heinemann

Integration Benefits on EU Retail Credit Markets — Evidence from Interest Rate Pass-Through

Competition benefits consumers in many ways. On credit markets, benefits arise from the speed of interest rate adjustment. With low competition banks are slow to pass declining market rates through to debtors. With high competition banks are forced to react in a faster way - otherwise they risk to lose market shares. Since integration of the EU markets for financial services intensifies competition it should, therefore, also speed up pass-through of interest rate changes.
Friedrich Heinemann, Martin Schüler

How Integrated Are the European Retail Financial Markets? A Cointegration Analysis

There is a wide literature that tries to measure integration in financial markets. The results of these studies differ substantially. The predominant part of it is concerned with wholesale financial markets. Clearly, in the context of measuring integration the distinction between wholesale capital markets and retail financial markets becomes crucial. It appears that often this dichotomy between wholesale and retail financial markets is not sufficiently taken into account when assessing the degree of financial market integration.
Martin Schüler, Friedrich Heinemann

Integration of the European Market for E-Finance — Evidence from Online Brokerage

There are basically two factors that foster financial market integration. First, policy-induced deregulation both at a national and at an international level, and second, technological change, i.e. the revolution in information technologies (Buch, 2000).
Martin Schüler

Benefits of Diversification and Integration for International Equity and Bond Portfolios

It is well known from portfolio theory that pure domestically invested asset portfolios are usually sub-optimal. If for example a private household in France invests only in French equities it will have a lower return-to-risk ratio than compared to a world-wide investment. As this is true in general for all types of investors, countries and assets, a better diversification should improve the performance of investments.
Michael Schröder

Deepening European Financial Integration: Theoretical Considerations and Empirical Evaluation of Growth and Employment Benefits

This paper analyses the macroeconomic effects of further integration in the European markets for financial services. In particular we are interested in growth and unemployment benefits of the reduction and abolition of cross-border barriers impeding the entry into the market of banking and insurance products. Usually, it is argued that facilitating the entry of foreign financial firms into the local market intensifies competition, improves efficiency, and increases the quality of the financial infrastructure. As such, foreign firms can be seen as an important catalyst for the sort of financial development that promotes growth.
Markus Neimke, Carsten Eppendorfer, Rainer Beckmann

Supervising the European Financial System

The EU’s financial sector has been undergoing an almost continuous wave of de-or re-regulation since the late 1980s. The single market programme with minimal harmonisation and home country control was implemented in successive periods for banking, insurance and the securities markets. By the end of the 1990s, however, under the impact of EMU, it was clear that this was not sufficient, and a Financial Services Action Programme set a schedule for the adoption of 42 directives to create a truly integrated financial market by 2005. Moreover, a Committee of Wise Men under the Chairmanship of Alexandre Lamfalussy made proposals to ease the adaptation of EU financial regulation to market developments.
Karel Lannoo
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