In line with the evolution at the European level the design of competition policy in banking has been substantially strengthened also at the national level and many exceptions have been removed over the last two decades. For example, since December 2005 competition policy in Italy is enforced also in the banking sector by the general competition authority rather than by the Bank of Italy. In the Netherlands, the Competition Act of 1998 applies to the banking sector, but only since 2000. Similarly, in Portugal, the banking system is subject to merger control since 2003, although with a delay of five years relative to the other sectors. Finally a decision of the French Supreme Court in 2003 concerning the merger between Credit Agricole and Credit Lyonnais made it clear that the banking sector was subject to merger control in France (see Carletti et al., 2006, and 2007).
Despite these changes, some important specificity concerning the relationship between competition and stability remains in the institutional design of competition policy in banking. As stated in art. 21(3) of the European merger regulation, “Member States may take appropriate measures to protect legitimate interests other than those taken into consideration by the EC Merger Regulation (…). Public security, plurality of the media and prudential rules shall be regarded as legitimate interests (…).” Taking it literally, this provision implies that, at least in merger control, stability considerations may override competition concerns. In Canada a merger of financial institutions may be exempted from merger control if the Minister of Finance certifies that it is in the best interest of the Canadian financial system. In the Netherlands the Minister for Economic Affairs can overturn a merger decision of the competition authority if this conflicts with the one of the supervisory authority. In Switzerland the supervisor may replace the competition authority and approve a bank merger, if that is necessary to protect the interest of creditors (see again Carletti et al., 2006, and 2007).
Whereas it is plausible to assume a more lenient approach toward market power in banking, it remains unclear whether the presumption that stability considerations should override competition concerns is warranted. The question is rather to which extent stability considerations should influence the design of competition policy. Relatively to