The most recent changes that have occurred in European banking stem from actions in the 1960’s and 1970’s these changes were brought about to try and establish a single European market. Though little action was actually taken until 1985 when the white paper from the European commission was created, “Completing the internal market”. It set a target date of 1992 for the creation of a single European market. The white paper was very detailed and contained 300 measures designed to remove physical, technical and fiscal barriers to trade within the E.U, its aim was to harmonise the marketplace, 1987. This act was designed to increase competition and operate on economies of scale and therefore strengthen their ability to operate in the world markets. Though this act did not specifically apply directly to the financial services sector it laid the ground for further developments. One of the main aims of this policy was to remove of the trade barriers and barriers to entry and all the different prudential standards and difference. Another important part of this act enabled providers of financial services of an E.U state to set up in another state which had not been previously possible. This act’s aim was to harmonise the financial systems across the E.U states, it laid down the minimum legal requirements a bank must follow in order to remain in business. This act also commented on the regulations under which collective investment can be carried out, relating to the authorisation of collective investment in transferable securities, it removed the restricts which meant that investment cold now carried out on a Europe wide basis.
These banking directives changed the banking structure of the European union into a more integrated and harmoniously regulated system. The first banking directive laid down the minimum requirements that a credit institution must follow in order to be authorised in a member state. The second banking directive took this process a little further by enabling firms to provide core banking functions throughout the E.U and many more clauses that enabled the banking system to become more integrated throughout the European union.
Investment services, i.e. non-bank investment firms were now given the same opportunities as banks had been give under the second directive, in the sense that they were now able to carrier out the same functions as banks had previously do so.
Insurance services were also given the freedom of establishment in 1973 and non-life insurance on 1975. The second non-life insurance directive, implemented in 1990 gave the insurance companies thee freedom to provide cross border insurance services for large commercial risks, 1992. The third directive in 1994 enabled all firms to provide cross border services for all types of risks.
Capital Movements had been previously restricted by the separate states but due to the changes that had been taking place the process started to de-regulate capital movements. This now meant that it was possible to move capital through the European economic area. A directive of the liberalisation of capital movements, it required the removal of all capital controls throughout the E.U this was adopted in 1988 but not actually put into effect until 1990. This meant that the markets were now much more transparent and it was a much more even playing field throughout the E.U, this also increased competition.
All of these changes that have been occurring in the financial system have had major implications throughout the financial services industry. Perhaps the biggest effect has been the increase in competition and the transparency for the consumers to compare rates, though this can all be easily undermined by the fluctuation that occur in the between the member states. The changes still haven’t seem to have affected the consumers loyalty for a national brand so it is still possible for firms to have monopoly power.
The last stages of the financial creation of the E.M.U, these are the stages that actually lead up to the actual creation of the European monetary union. Stage one occurred in July 1990 this is when the aim of liberalising the financial markets was actually achieved as all exchange controls were removed the E.R.M, European monetary union was enlarged and the exchange rate mechanism was established. Stage two January 1994 saw the establishment of the European monetary Institute; it was a body, which was created in order to oversee the creation of a better, integrated financial industry, in preparation for the E.M.U, European Monetary union. Stage three the European Monetary institute was replaced by the European central bank now together with the other central banks to form the European system of central banks. The fixing of exchange rates and replacement of national currencies, for those countries that wish to do so and replace it with the euro, European currency. The plan is to eventually hand over the control of the monetary authority to the central bank.
This changing nature of the European financial system and the implementation E.M.U.
In Europe the branch networks of the banks are getting smaller though the increased technology has made it easier to people to have access to their funds with the introduction of ATM’s Telephone/Postal/Internet banking and even W.A.P banking and many more new ways for customers to access their money. Banks have also increased the services that they now offer to their customers due to the de-regulation. This has been shown with banks now offering savings accounts, loans, mortgage, insurance services and many many more functions. It has also meant that banks have lost a lot of their monopoly power due to the creation of retail banks offering core-banking functions, companies raising capital directly from the markets themselves.
There are many arguments against de-regulation though I will only talk about the three main ones. Moral hazard is where the regulation will cause people to become counter productive, or behave in such a way. This will occur because people in the organisations fell protected from the risk so will take greater risks than they would have previously have done so. High regulation of one financial centre, make cause the movement of centres where regulation is more relaxed, an example of this is off shore banking. All regulation will be at an extra cost on both the regulated and the regulators, which will have to be passed on to the consumer in one way or another. This will also increase the barriers to entry and exit, as it will mean the potential firms will have more requirements required of them to enter the market. Though regulation, if it I created in the right way can help the financial can help contribute to the growth in the economy.
Many changes have occurred in the European financial sectors but the main aims of these changes have been customer orientated and had the goal of further integration throughout Europe and to increase the compeition and prepare the sector for a place on the world stage and to have uniform controls throughout the E.U
