Banking in the European Economic Community: Structure, Competition, and Public Policy

Abstract

In most countries, banking is a heavily regulated industry. " Indeed, banking is among the most heavily regulated of economic activities." 1 And even after years of attempts in several countries to disencumber this industry from regulations that foster inefficiencies and, contrary to original intent, distort incentives for risk-taking, it remains highly regulated. Governments have played a major role in shaping the nature of bank loan markets and deposit contracts in attempts to provide countries with a particular kind of financial service industry, together with a variety of explicit and implicit support systems. This role has had the good effect of securing considerable financial stability in many industrialized economies during the postwar period. At the same time, in some cases the price of this stability has been an inefficient industry for certain types of financial services and at times has stunted the growth and efficiency of competing capital markets. In a few cases, it has also exposed governments to substantial financial risk and losses.