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EC regulations establishing common minimum regulatory standards for
financial services should have far-reaching implications. Some studies
have suggested that they will lay the ground for a fully competitive
banking market within the EC, with huge gains for consumers. In
Discussion Paper No. 373, Research Fellow Xavier Vives disagrees,
pointing to important economic barriers to entry to banking. These
include the need for branch networks, switching costs for consumers and
reputation. Vives agrees that price competition will increase, but not
so much as some have argued. The banking market will also remain highly
segmented, with retail banking for low to middle income consumers
experiencing little or no increase in competition. The most likely
effect of removing restrictions on banks' operations will be an increase
in mergers and acquisitions, as over-extended branch net- works are
rationalized. Banking Competition and European Integration Xavier Vives Discussion Paper No. 373, March 1990 (IT/AM) |
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