European banking integration, ten years after.

Ten years ago, the White Paper on the Completion of the Single Market announced the integration of European banking markets. The purpose of this essay is to identify four public issues that remain to be addressed. Home country control of international banks need to be complemented by host country control. The deposit guarantee schemes should be modified by rendering insured deposits first order claim'. A European authority is needed to ensure thanks do not exploit domestic rents to subsidize international activities. Finally, tax evasion is a fourth issue that remains to be addressed. The aim was to dismantle the technological, regulatory and fiscal barriers that prevented the free flow of goods, capital and persons in the European Union. As concerns banking and financial services, a major issue arises as to whether regulation and supervision must be handled by a unique European authority, or whether it can be delegated to independent national central banks and supervisory bodies. After trying in vain to harmonies national banking regulations over 20 years, the European Commission adopted the principle of the single banking licence, the home country control, and the opening of borders with minimal harmonization of regulations. The purpose of this paper is to develop a critical review of the approach adopted for the integration of banking markets in the European Union. The issues raised go far beyond the creation of a European market; they concern international trade in financial services. At a time when the North American Free Trade Agreement (NAFTA) integrates further the economies of Canada, Mexico and the United States, and when the new World Trade Organization has concluded successfully a trade agreement in financial services, a discussion of the policy issues raised by international banking integration is timely. The paper is structured as follows. The European banking industry and the early effects of financial integration are described in Section 2.... [ABSTRACT FROM AUTHOR]