Brussels, 11/01/2008 (Agence Europe) - The integration of retail banking services is coming under increased scrutiny in Europe. The European Commission announced in November 2007 that it would be one of the key aspects of its reform of the Common Market (see EUROPE 9547) and the European Parliament devoted a public hearing to this issue, which confirmed the crucial importance of consumer protection in retail banking services (see EUROPE 9549). The subject was also the subject of reflection on Friday 11 January 2008 by Brussels thinktank The Centre.
Eric Ducoulombier, head of unit at the European Commission, said that the introduction of a genuine single market for retail banking was conditional on three factors. Firstly, political will was probably more crucial in this industry than elsewhere in order to get people in the member states to accept the idea of giving up certain prerogatives, he explained, adding that some Member States are not prepared to swallow this. An illustration of this is the bitter negotiations over the draft consumer credit directive, which the EP will be voting on in second reading next week (see EUROPE 9577). The initial error had been to believe that the expected benefits would be self-evident to everyone. In order to avert foot-dragging and deadlock which would result in lack-lustre results as far as the banking industry was concerned, Ducoulombier recommended that in the future, all new initiatives should be discussed and endorsed at the highest political level in the member states before being unveiled. Failing this, it would be pointless to continue down this path, he added. The existence of proof that the integration of retail banking services genuinely did provide tangible economic advantage is the second precondition. The European official explained that a credible business case was required in order to convince the many member states which observe a distinct lack of appetite among consumers of going abroad for banking services. Thirdly, Ducoulombier stressed the importance for the European institutions of drawing up a framework of balanced and correctly calibrated regulation. Referring to the working document on this issue published by the European Commission in November 2007, he suggested targeted proposals and ideas for specific sections of the market where there existed genuine value-added, namely mobility of banking services and increasing consumer confidence through greater protection, better information and greater opportunities to appeal for remedies. Ducoulombier said the Commission had no preconceived ideas for or against regulation and would be encouraging the banking industry to prepare self-regulatory measures in the first six months of this year to increase mobility in banking services.
David Shirreff, a journalist who drew up an information report for The Centre on retail banking, saw the upcoming break-up of Dutch bank ABN Amro, following its acquisition by a consortium comprising the Royal Bank of Scotland, Fortis and Santander (see EUROPE 9516), as the emergence of a new way of looking at banking institutions, as one section of a range of separate businesses, each with their own capital and risk profile, rather than as a monolith. In his report, he urges the Commission to continue using its competition powers when mergers and acquisitions come within its competence.
Generally optimistic, David Doyle, European officer at accountants' association ACCA, said that the integration of retail banking services was possible in the medium-term and would be stimulated by two phenomena - the introduction of a Single European Payment Area (SEPA) and the current financial crisis that was pushing up the cost of credit. Nicola Jentzsch of the European Credit Research Institute discussed consumer expectations. She said they preferred proximity, which is why banks wanting to gain shares of the market in other member states tended to buy up existing payment networks rather than offering cross-border products as such. She said that it would only be possible to integrate specific markets and not retail banking as a whole.
Why is retail banking not integrated? Mainly due to the diversity of national rules governing consumer protection, explained Sacha Polverini of UK banking giant Barclays. He said further action was required in this domain to improve market conditions and provide greater clarity to the banking industry. He agreed with the need to strike a balance between consumer interests and the interests of the industry, regretting the lack of industry players in the debate. He queried the real benefits of greater consumer choice by integrating retail banking services, noting that the banks fear that integration would actually lead to less diversity in the products available and that it had yet to be demonstrated that consumers were capable of digesting more complex financial information. (M.B.)