The Competition And Efficiency Analysis Of EU Banking Industry Integration

Since the establishment of European Economic Community (later EU), theEuropean internal market has always been one of the key issues in its development,especially the single financial market. Many policies, laws and directives have beenset in place to guarantee the smooth and steady progress in realizing the singlefinancial market. After ten years of EU and five years of Euro, it is worthy ofanalyzing how the EU internal single financial market has developed, what changes oreffects have arisen and how to evaluate and understand the existing problems. The paper starts from the EU banking industry integration progress as a researchbackground, then it analyzes the changes of market structure and competition degreeof EU banking industry, the changes of banking competition strategies and behaviors,and the consequent changes of banking performance and efficiency in details.Through the competition and efficiency analysis of EU banking industry, this paperintends to understand and evaluate the effects on the banking market brought byintegration in depth, and suggest how to promote the competition-reinforcing andefficiency-increasing effects of those integration polices. The paper is arranged as thefollowing seven parts. The first part is introduction. It states the practical meaning, theoretical meaningand policy meaning of this paper, and then it defines the focused research scope. Thatis to analyze the market structure, competition behavior and efficiency level of EUbanking industry under the background of EU banking integration, and highlights howto use those analysis to understand the omnifaceted effects of EU banking integration,especially under the competition and efficiency concepts used in this paper. It alsopoints some deficiencies of current research methods and presents the structure,research method and innovations of this paper. The second part is used to describe the integration progress of EU bankingintegration, measure the integration extent and existing barriers of EU bankingindustry, which could be the background of later analysis. First it discusses somefinancial integration measurement indicators or methods in theory, and then combinedwith the practical situation of EU banking industry it measures the integration extentof EU banking industry. Also it analyzes the relationship between the integrationsituation and policy or nature barriers. The third segment describes the current market structure, competition extent ofEU banking industry. Through the quantitative analysis of EU banking data, it findsthe concentration level of the whole EU banking market drops, while it increases inindividual member countries. And the entry barriers have been much reduced, so thetotal competition extent is still intensified within EU banking market. Therefore thetraditional structure-conduct-performance approach could not explain the competition viiisituation of EU banking industry well, and it is more suitable to use the modifiedstructure-conduct-performance approach, which emphasizes the entry barrier andcontestability features. The fourth segment designs some bank competition models to analyze what arethe optional competition behaviors chosen by banks from the micro decisionviewpoint. It analyzes the effects on bank competition behavior and risk level in theenvironment with banks quantity increased, market opened up, market share-pursuingobjective, information technology widely used in banking, etc. Besides the normalpositive effect of promoting competition and increasing efficiency, it turns out that insome situations, such as when high nature barriers to integration exists, rapidinformation technology application and improvement happen in banking industry andwhen competition is based more on variable costs, integration would have somenegative effects, that are reducing competition and increasing risk. The fifth part analyzes the concrete competition beha...