ABSTRACT

The legislation that forms the cornerstone of the European Union’s plan for a single market in banking came into effect on 1 January 1993. The central aim of this legislation was to create the largest and most open banking market in the world with institutions competing on a so-called ‘level playing field’. Minimum regulatory standards were to be implemented so as to remove the competitive advantages of domestic banks in each member state over competitors from other EU countries. This chapter provides an overview of the EU legislation relating to banking and argues that there are three main reasons why no level playing field exists in this market. First, member states have considerable freedom to act in derogation of the single market, taking advantage of the ‘general good’ opt-out. Second, tax obstacles in member states largely frustrate the cross-border provision of financial services, and one recent ruling of the European Court of Justice has helped keep in force these barriers. Third, there has been a wide degree of flexibility when EC law is incorporated at the national level. In addition, this chapter shows how EU banking legislation has been formulated so as to reconcile the demands of the member states, while at the same time taking account of extremely competitive forces from outside the Union.