02 June 2008

ELEC Cahier Boël on Pan-EU retail banking

Efforts to improve the internal market for financial services should focus on targeted full harmonisation of other relevant laws and regulations, ELEC says and also recommends the harmonisation of deposit guarantee schemes.

Efforts to improve the internal market for financial services should focus on targeted full harmonisation of other relevant laws and regulations and the harmonisation of deposit guarantee schemes in order to create equal conditions for all providers of financial services, ELEC says.

 

As retail banking markets are still fragmented, ELEC calls for increasing the transparency of markets and improving the availability of prices and quality of financial products Barriers for foreign internet suppliers of financial products should be eliminated to offer simple products that can be easily compared.

 

The SEPA process should be monitored and competition practices within countries should be scrutinized.

 

Executive summary and ELEC recommendations:

In monitoring competition and market practices, the focus should not be on concentration issues alone, says Wim Boonstra, chairman of the Monetary Panel of ELEC, in the first chapter of this Cahier. Traditional concentration ratios on the national level are poor proxies for the intensity of competition. It is better to watch concentration on the level of relevant submarkets and/or regional level.

 

There, concentration levels can differ strongly from concentration on the macro-level on national scale. Moreover, measuring the availability of branches of several suppliers of financial services might be a useful addition as a measure of potential market power, as a high concentration ratio in a densely populated area has a totally different impact than the same degree of concentration in a rural area. Furthermore, more research is needed on the behaviour of consumers.

 

Where the Commission strongly focuses on the costs of switching banks, it pays so far no attention to the fact that in some countries more and more consumers hold accounts with several banks at the same time. Competition between suppliers tempts clients to go for the best offer in the market, increasing their number of banking relations in the process.

 

ELEC holds the opinion that government intervention in the operation of banks should be kept to a minimum and, even in this case, aimed at ensuring the healthy working of competitive market forces.

 

One of the latest developments is that the Consumer Credit Directive has been adopted by the European Parliament (January 2008). The working party of ELEC that has prepared this ELEC cahier concludes that the final version of the CCD is as a whole a more acceptable outcome for the banking industry than the first proposals. These were in our opinion not going to be effective and also very costly. The CCD will now hopefully contribute to the further development of the internal market for retail banking services. Specifically, we consider it positive that full targeted harmonization has been respected on some key points. It is crucial that national implementation is as consistent as possible.

© ELEC