DP703 Deregulation of the European Banking Industry (1980-1991)

Author(s): Jordi Gual, Damien J Neven
Publication Date: August 1992
Keyword(s): Banking Regulation, European Integration
JEL(s): G21, L10, L50
Programme Areas: Applied Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=703

In this paper the experience of deregulation in the banking sector of seven EC countries (Belgium, France, Germany, Italy, the Netherlands, Spain and the UK) is analysed. Lessons are drawn for assessment of how the EC directives affecting this sector could further affect the industry. Our findings broadly confirm intuition: there is some evidence that firms in protected markets earn large rents, which are partly dissipated in excessive costs and captured by workers. Conduct deregulation seems to be effective in triggering more intense price competition; as deregulation takes place, profits are reduced, cost control is improved but wages appear somewhat more sticky. We observe that restructuring seems to take place in the product rather than the capital market and that trade is a significant pro-competitive force.