European Financial Markets and Institutions

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Boxes......Page 10
Figures......Page 12
Tables......Page 16
Member states of the European Union......Page 18
Countries in the euro area......Page 19
Abbreviations......Page 20
How does this textbook compare with other books?......Page 25
How to use this book......Page 26
Part I Setting the Stage......Page 29
OVERVIEW......Page 31
The financial system......Page 32
Main functions......Page 34
Reducing information asymmetry and transaction costs......Page 36
Trading, diversification, and management of risk......Page 37
Role of government......Page 39
Foreign participants......Page 40
1.2 Bank-based versus market-based financial systems......Page 42
Providing financial functions......Page 43
Corporate governance......Page 44
Types of activity......Page 48
Other differences......Page 49
Complements......Page 51
Legal system......Page 53
1.3 Conclusions......Page 56
Suggested Reading......Page 58
References......Page 59
OVERVIEW......Page 61
2.1 European integration: introduction......Page 62
2.2 European institutions and instruments......Page 64
Institutions......Page 65
Legal instruments......Page 68
2.3 Monetary integration......Page 70
The Internal Market......Page 76
The Financial Services Action Plan......Page 78
Lamfalussy process......Page 82
2.5 Conclusions......Page 83
International Accounting Standards (1606/2002/EC)......Page 84
Distance Marketing Directive (2002/65/EC)......Page 85
Occupational Pension Funds Directive (2003/41/EC)......Page 86
Notes......Page 87
References......Page 88
Part II Financial Markets......Page 89
OVERVIEW......Page 91
LEARNING OBJECTIVES......Page 92
Functions......Page 93
Quote-driven markets......Page 94
Order-driven markets......Page 96
Overview of financial markets......Page 97
3.2 Money market......Page 99
Monetary policy instruments......Page 100
Interest rates......Page 101
Developments in money-market segments......Page 104
3.3 Bond markets......Page 105
Issuance......Page 107
Government bond yields......Page 109
Corporate bonds......Page 113
Initial public offerings......Page 119
Consolidation......Page 123
3.5 Derivatives......Page 125
Credit derivatives......Page 130
3.6 Conclusions......Page 131
Notes......Page 132
References......Page 133
OVERVIEW......Page 135
Definition of financial integration......Page 136
Market forces......Page 137
Collective action......Page 138
Public action......Page 139
4.2 Measuring financial integration......Page 140
Price-based measures......Page 141
News-based measures......Page 143
Quantity-based measures......Page 144
4.3 Integration of European financial markets......Page 145
Money market......Page 146
Government bond market......Page 147
Corporate bond market......Page 149
Equity market......Page 151
4.4 The consequences of financial integration......Page 153
4.5 Conclusions......Page 159
Notes......Page 160
References......Page 161
OVERVIEW......Page 163
Payment systems......Page 164
Retail payment systems......Page 165
Card-based payment systems......Page 169
Wholesale payment systems......Page 171
Post-trading services......Page 172
Role of the Eurosystem......Page 174
5.2 Economic features of payment and securities market infrastructures......Page 175
Large-value payment systems......Page 179
Retail payment systems......Page 181
Post-trading industry......Page 185
Wholesale payments: TARGET2......Page 186
Post-trading process: Code of Conduct and TARGET2-Securities......Page 187
5.4 Conclusions......Page 188
Suggested Reading......Page 189
References......Page 190
Part III Financial Institutions......Page 193
CHAPTER 6 The Role of Institutional Investors......Page 195
Pension funds......Page 196
Life insurance companies......Page 200
Mutual funds......Page 201
Special types of institutional investors......Page 202
Re-intermediation......Page 208
Drivers of growth of institutional investment......Page 211
Supply-side factors......Page 212
Demand-side factors......Page 213
Portfolio theory......Page 215
International diversification......Page 218
Measuring the home bias......Page 219
Evidence on the home bias......Page 221
Explaining the home bias......Page 226
6.5 Conclusions......Page 228
Suggested Reading......Page 229
References......Page 230
OVERVIEW......Page 232
Lending business......Page 233
Fee-based business......Page 234
Banks as delegated monitor......Page 236
7.2 The use of risk-management models......Page 240
Modern risk management......Page 241
Centralisation of risk management......Page 247
Banking markets across Europe......Page 248
Domestic and cross-border mergers and acquisitions......Page 254
Market structure and competition......Page 256
Notes......Page 260
References......Page 261
OVERVIEW......Page 264
8.1 The financial system......Page 265
8.2 The banking sector......Page 268
8.3 What attracts foreign banks?......Page 272
Foreign bank presence......Page 273
Motives for foreign-bank entry......Page 274
Entry mode and organisation form of representation......Page 276
8.4 Financial integration and convergence......Page 278
8.5 Conclusions......Page 283
References......Page 284
OVERVIEW......Page 287
Small vs. large claims insurance......Page 288
Re-insurance......Page 291
Asymmetric information......Page 297
Modern risk management......Page 301
Centralisation of risk management......Page 304
Hub functions......Page 305
Spoke functions......Page 306
Insurance markets across Europe......Page 307
Market structure and performance......Page 312
9.4 Financial conglomerates......Page 316
Notes......Page 321
References......Page 322
Part IV Policies for the Financial Sector......Page 325
OVERVIEW......Page 327
Market failure......Page 328
Government failure......Page 330
10.2 Prudential supervision......Page 332
Protecting retail customers......Page 340
Market functioning......Page 343
10.4 Supervisory structures......Page 345
The problem......Page 349
Policy options......Page 351
Lead supervisor......Page 352
European System of Financial Supervisors......Page 353
How to get there?......Page 355
10.6 Conclusions......Page 357
References......Page 359
OVERVIEW......Page 362
11.1 Financial stability and systemic risk......Page 363
Relevance of financial crises......Page 368
11.2 How can financial stability be maintained?......Page 374
Liquidity-support measures......Page 377
Public-intervention tools......Page 378
11.3 The current organisational structure......Page 381
Cross-border externalities......Page 384
Single-country model of bailout......Page 385
Multi-country model of bailout......Page 387
Cross-border co-operation......Page 388
Burden sharing......Page 392
11.5 Conclusions......Page 393
Notes......Page 394
References......Page 395
OVERVIEW......Page 399
12.1 What is competition policy?......Page 400
12.2 The economic rationale for competition policy......Page 401
Antitrust......Page 406
Examining mergers......Page 409
12.4 Assessment of dominant positions......Page 411
Step 1: Identify the relevant market......Page 414
Step 2: Abuse of dominance?......Page 416
Step 3: Issue decision......Page 417
12.5 Institutional structure......Page 419
Notes......Page 423
References......Page 424
Index......Page 427