The Harmonization of EC Banking Laws: The Euro-Passport to Profitability and International Competitiveness of Financial Institutions

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THE LIBERALIZATION OF FINANCIAL SERVICES

A system that produces institutions that are less profitable and less competitive is inherently unsafe and unsound in the long run.

Statement of Nicholas F. Brady, Secretary of the U.S. Department of the Treasury, before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. (1)

The concept of free movement of persons, goods, and services (2) within the European Community (EC) means different things to different people. European farmers, who imagine mountains of butter and lakes of wine, are afraid of dropping prices. Consumers, on the other hand, anticipate profits from the liberalization of financial services. They also dream of a pure strict product liability system. (3) Yet they complain that consumer protection laws have been cut back too far and that the beer does not taste like it did in the good old days. (4) Trade unions fear a sharp drop in wages and social standards, (5) but they welcome the idea of "free movement of labor."

Bankers view the liberalization of financial services (6) within the Community with different feelings. (7) Some are worried about the changing environment, the increase of competition and the decrease in profits. They complain that Europe is grossly over-banked and question the basic principles of the banking supervisory law. n8 Bankers from countries with a universal banking system (9) are angry about the balkanization of the financial industry, while bankers from countries with a dual banking system (10) are also disappointed, for they expected more deregulation. Bank customers demand a higher and more consistent deposit insurance, while some bankers see the deposit insurance scheme as a hindrance to a sound banking business. (11) Banks have to face new competitors such as insurance corporations, supermarkets and car producers, which have their own internal corporate banks, (12) while simultaneously confronting the opening of the market to the East.

Although a gloomy picture is sometimes drawn in public, in the orchestra pit one learns that most financial institutions are really bullish on 1992. In fact, for European lawyers there is nothing but sunshine and paradise. The rapidly approaching 1992 target date has provided them with endless opportunities. Harmonization measures must be prepared and formulated, must be transposed into the national laws, and--one hopes--will then have to be applied.

THE EUROPEAN COMMUNITY AS A COMMUNITY OF LAW

Trade Barriers

The European Community is a "political community" with common values, such as personal freedom, civil rights, democracy, and the protection of the environment to ensure the future of the EC. The European Community is an "economic community" which has as its goal the establishment of a common market and the progressive harmonization of the economic policies of the Member States. The economic community is intended to be a community in which the manufacturing industry and the service industry compete on equal footing to the advantage of consumers. For example, competition among the financial institutions and the diversification of financial services serve both wholesale and retail customers. Thus, the European Community is also a "community of consumers." Finally, the European Community is a "community of law," meaning it is based on law, it is a source of law, and it is controlled by the European Court. (13)

To achieve a common market, Article 3 of the Treaty of Rome provides, among other objectives, for:

(a) the elimination . . . of customs duties and of quantitative restructions . . . .

(c) the abolition . . . of obstacles to the free movement of persons, services, and capital . . . .

(h) the approximation of [the municipal laws of Member States] to the extent necessary for the functioning of the Common Market. (14)

These objectives have been much more difficult to realize than was originally anticipated. …