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the receiving institutions. In this respect, it is important to evaluate also the future effects of state aid in terms of risk taking and moral hazard problems for the institution receiving the subsidy as well as for its competitors for which, as found by Gropp et al. (2006), this negative potential effect seems to be even more severe.

7. Integration and liberalization in the financial industry in Europe: Recent

developments Much has happened in the European financial landscape since the creation of a single market in 1992 and the introduction of the euro in 2002. Numerous regulatory measures have been adopted by the European Union in order to create broad and deep capital markets through financial liberalization and integration. One important measure was the launching through the Lamfalussy process of the Financial Services Action Plan (FSAP), which aimed at creating a single and integrated financial market in Europe by 2005, in particular in retail banking.

The integration of European banking markets has proceeded through minimal harmonization and home-country regulation. Since the implementation of the Second Banking Directive in 1989, banks have been free to establish branches in other European countries and remain under the regulation of their home supervisor. Mutual recognition has been complemented with increasing harmonization of the standards for prudential regulation through several financial sector directives and the work of the Lamfalussy committees. The goal is to establish an institutional infrastructure to facilitate supervisory convergence, cooperation and information sharing. In particular, the Committee of European Banking Supervisors is mandated to develop common standards, guidelines and interpretative recommendations. A notable work of the Committee relates to the implementation of the Capital Requirements Directive (CRD) for banks and investment firms. Other important legislative steps for the integration of financial markets are the forthcoming Solvency II Directive for insurance companies, and the Markets in Financial Instruments Directive for financial markets. Work is underway to integrate securities clearing and settlement systems. According to the EU regulation 2560/2001 on cross border transfers and cash withdrawals since 1 July 2003 consumers are charged the same

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