Speech Neelie Kroes: "Sterkere concurrentie in markt voor financiële producten: een bedreiging of een belofte?" (en)

SPEECH/06/344

European Commissioner for Competition Policy

Eurofi Conference on Retail Financial Services in Europe

Brussels, 6th June 2006

Ladies and gentlemen,

First of all, I would like to thank Mr Bruneel for his kind introduction. Without wishing to focus too much on his employers, I can say that we are very interested in big banks like Dexia. It is part of the new breed of increasingly pan-European banks, that are bringing new competitive products to consumers across the EU. In this way, they have a vital role in strengthening competition and developing the Single Market in financial services.

Working with industry to build this Single Market in financial services is a vital element of the Commission's Lisbon Strategy for jobs and growth - which, as you know, is the centrepiece of our work programme. And why should we care about a competitive financial services sector? Because it is key to the competitiveness of Europe. It manages and generates wealth for consumers and investors, and it promotes flexibility and dynamism in the EU economy.

So we have a shared duty - industry and government together - to maximise the competitiveness of the sector. Everyone will benefit - both businesses and consumers throughout Europe.

Competition is becoming ever tougher

I have been asked to answer an important question today. Tougher competition: a threat or a promise? As you might expect me to recognise as Competition Commissioner, competition can be a threat to some. Mainly to those firms that are unwilling to adapt and to continue delivering value for customers. But tougher competition is mostly a promise. It is a promise that we make to consumers and to society as a whole.

Indeed, tougher competition in financial services is a promise that is already being fulfilled. In recent years we have seen increasing evidence of deeper and more efficient European markets across a range of financial services. This extends from securities markets to areas such as corporate and investment banking.

The progress is very encouraging. To a large extent, it has been driven by two major Commission initiatives. Firstly, the creation of the euro, which spurred integration in Europe's banking sector. And secondly, the Financial Services Action Plan - the FSAP. The FSAP Directives were developed through co-decision between the Commission and the European Parliament. They have helped to tackle many of the legal barriers in the EU and have enabled more market entry and stronger competition. Parts of the FSAP are still being implemented. And of course implementation and enforcement are vital in all Member States to ensure an open and level playing field for competition.

The role of competition policy

But as we all know the policy agenda is moving beyond the FSAP. The Commission's financial services White Paper was published by Charlie McCreevy i in December and has been endorsed by the European Parliament. The White Paper calls on us to use the full range of tools available to deliver the Single Market. And at the heart of this future strategy is competition policy - opening up markets; promoting transparency; and identifying and tackling the full range of market barriers. And of course this will always go hand-in-hand with internal market policy. I would like to talk to you today about what we are doing to strengthen competition in financial services markets - specifically in banking, insurance and securities.

Competition in banking

Firstly, I would like to look at competition in banking. I have already pointed to the good progress that has been made in the last decade in integrating Europe's wholesale and corporate banking markets. However, it is clear that competition in the retail banking sector is lagging behind, to the detriment of consumers and small businesses. And this is particularly important for the economy, because retail generates more than half of all European banking activity. This is why the Commission decided - in June 2005 - to launch a major sector inquiry into retail banking. That was one year ago and we have certainly been busy.

Payment cards

In April, we published our preliminary findings on the payment cards market. Our report identified markets that are fragmented along national borders. It indicated weaknesses in competition and a range of market barriers. These problems are sustaining the high payment card fees that firms are being charged. These high fees are then passed on to consumers as a kind of tax.

For example, we found that payment card fees can vary by up to 400% between Member States. We also found evidence of very high profits for banks across the board. In view of the scale of the competition problems in the payment cards market, I am not convinced that these high profits represent a genuine reward for innovation and risk-taking.

We are nearing the end of the ten week public consultation on the payment cards report, which closes on 21 June. We are looking to all stakeholders - particularly industry - to come forward with proposals to address the market problems we have identified and to build consensus on the way forward.

Current accounts and related services

Alongside payment cards, we are looking at the wider market for current accounts and related services - such as savings accounts and loans. We are looking at the market from a number of angles.

Firstly, from the consumer perspective. We will ask whether there is sufficient choice and innovation in the market. And, crucially, we will ask whether it is easy enough to compare and switch between providers.

Secondly, we will look at barriers to entry in the banking market. Whether regulatory or not, these barriers can deter market entry and so damage competition.

Thirdly, we will look at ways to further enhance the efficiency of the European banking sector. And of course the sector inquiry can make a huge contribution here by providing a wealth of information to improve the understanding of the market amongst industry and regulators.

Next month we will publish our preliminary report on current accounts and related services, for consultation. On 17 July, in Brussels, there will be a public hearing to look at our findings on this subject and on payment cards. This will also be a belated birthday party for the sector inquiries - and I would invite all interested parties to attend.

Banking mergers

I would like to speak briefly about banking mergers, since we are living in such interesting times. Some cross-border mergers have gone smoothly, such as Santander and Abbey in November 2004. However, other proposed mergers have been less straightforward. Three takeover bids received very wide media coverage: ABN Amro's bid for Antonveneta; BBVA's bid for the Italian bank BNL; and the merger between Unicredit and HVB.

This increasing trend of cross-border mergers is encouraging. Such mergers bring greater competition - and the evidence suggests that they lower prices for consumers. But, despite the Commission's clearance of each proposed transaction, national authorities intervened in order to prevent the deal. I will not say much more here since the details of these three cases remain fresh in our minds. But I will note that in some Member States, the Commission considers that current banking legislation lacks procedural transparency and creates legal uncertainty. This uncertainty is damaging for industry and ultimately for consumers. Therefore the Commission - led in this area by Charlie McCreevy - is taking action.

State aid in the banking sector

In the field of state aid the Commission seeks to strengthen competition in banking by ensuring a level playing field for all financial institutions.

Firstly, we have secured the abolition of unlimited state guarantees to public banks. In Germany these guarantees were a major and long-standing cause of market distortion. Similar guarantees have been abolished in Austria and France.

Secondly, we constantly apply the `market economy investor principle' to test whether States are investing money on conditions that would not be acceptable to private investors. For example, in the transfer of state-owned assets to WestLB, the Commission found that the remuneration which WestLB had to pay was well below market level. As a result, the bank was required to make additional payments to the regional government

Competition in the insurance sector

I will turn now to insurance. The highlight of our work here is the sector inquiry into business insurance. We decided to launch this inquiry to assess whether the high level of cooperation between market players is consistent with healthy competition.

Insurance is not a network industry. But co-operation within the industry may help to generate certain market efficiencies. For example, by having standard clauses for some of the complex legal aspects of insurance policies. Also, cooperation through insurance pools may sometimes be necessary in order to cover very large risks. That is why, in 2003, the Commission exempted certain forms of cooperation between insurers from Article 81.

However, we have learnt from a number of cases - at both EU and national level - that cooperation among insurers may go beyond what is healthy for competition in the Single Market.

The inquiry covers: horizontal and vertical co-operation between market players; conditions of market entry in different Member States; and the remuneration of intermediaries. We will publish the interim report on business insurance in the autumn. And we will consult all stakeholders on the key competition issues and the possible ways forward.

Competition in securities markets

I will turn lastly to securities markets. In the field of securities trading, competition policy has a vital role in helping to build an integrated European financial market. And the potential prize is large. It is estimated that the current fragmentation of capital markets costs the EU economy at least 1% of GDP. National markets, which have historically developed as national monopolies, are now taking on a greater cross-border dimension. This creates both opportunities and risks.

As we have explained in our recent issues paper on this sector, the Commission believes that competition between trading platforms is both possible and desirable. But current arrangements make it unduly difficult for a potential challenger to use the post-trading infrastructure on equal terms. And there are several other important competition issues in this market. For example, potentially excessive inter-mediation costs in the brokerage layer. Of course many of these issues will rely on regulation or on the market participants for an answer. But competition law and policy also has an important role.

Closing remarks

This was a brief tour of the work we are doing to strengthen competition in financial services. This agenda is a real priority for the Commission. And I know how important it is that we work together with you, the financial services industry, to develop a policy approach that is based on the best evidence and works with the grain of markets.

Ladies and gentlemen

To conclude, let me return to the central question in my speech today. Is tougher competition a threat or a promise? At the heart of it, tough competition is a promise. And it is a promise that we are already delivering on. We are seeing important progress for businesses and consumers throughout Europe, and are already witnessing the benefits.

There is still a lot left to do to complete the Single Market in financial services. But we are using the full range of competition tools available: to open-up markets; to create new opportunities for the best firms; and to deliver more benefits for consumers. By ensuring that competition policy and internal market policy continue to work hand in hand, we are committed to meeting the challenge.