Deregulation, Integration and Market Structure in European Banking

Abstract

This paper analyzes the impact of deregulation and market integration policies on the structure of European banking markets.

It argues that whether European integration will lead to large increases in EU-wide concentration will depend on the extent to which competition in banking is based on endogenous sunk costs or, alternatively, on variable costs and exogenous sunk costs.

The paper also highlights the role of own funds as a source of endogenous increasing returns. Finally, it proposes an empirical test of the dominant form of competition. This procedure is applied to data for eleven EU countries during the period 1981-1995.

JEL Classification: G20, G21