Financial Intermediation in Europe

This book provides the foundations for an additional perspective on optimal currency area theory (OCA). The links between financial and monetary integration (via financial intermediation and banking) offer another path towards understanding monetary transmission and, therefore, OCA theory. This study promotes the idea that banking and market imperfections are effectively two sides of the same coin. Financial intermediation, and the economics of banking, merit special consideration - especially in discovering the impact and effectiveness of financial integration and EMU.Two items were firmly on the European economic agenda in the 1990s: financial market integration and European monetary union (EMU). The former was supposed to have been achieved via the Single Market Act and the latter came into being on January 1, 1999. This study is concerned with a particular connection between the two themes, namely the process of financial intermediation and especially the role of banking. The book is centred on four key questions: §-What happened to European banking before, during and after the implementation of the Single Market Act? §-From a theoretical perspective, to what do banks owe their existence: what is special about banking, what makes banks tick and why do they matter? §-How does competition in banking unfold: what are the main channels or competitive instruments in the process? §-What are the links between the yield curve and the banking system: how do changes in the term structure of interest rates affect both bank pricing and portfolio allocation?§This research explores competition among banks and other financial intermediaries, with specific implications for the asset allocation process and pricing policies in banking. This book provides the foundations for an additional perspective on optimal currency area theory (OCA). The links between financial and monetary integration (via financial intermediation and banking) offer another path towards understanding monetary transmission and, therefore, OCA theory. This study promotes the idea that banking and market imperfections are effectively two sides of the same coin. Financial intermediation, and the economics of banking, merit special consideration - especially in discovering the impact and effectiveness of financial integration and EMU.