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Financing of the EU economy - Priorities for building a single retail financial market

Domestic banks will capitalize on their assets to face EU single retail market

By Lustman Florence - Chief Financial Officer, La Banque Postale

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In a EU single market of retail financial services, domestic banks will still benefit from what they believe to be major assets on their market: the knowledge of national legislation and tax system, of the cultural specificities that influence the design of products, the physical proximity with the customers, and, last but not least, the mastery of the local language. Those elements establish the necessary trust, prerequisite for any banking relationship.

A single market could create for them the opportunity to better assist their customers for their trans-border activities. However, a limited number of customers are concerned.

Beyond this opportunity for an additional service for a specific customer segment, the opportunity for a domestic bank to sell outside its home member state without being actually based there seems to be quite limited. Most banking products are indeed rather complex, in their design as well as in the way they have to be sold to the customer, as shown in the 3 following examples.

For a home loan, the risk analysis has to be based on a comprehensive set of country-specific data, and on precise information about local property loan guarantee system, among other things. Without those elements, risk analysis will not be relevant, which might put customers and banks at risk. The same applies to insurance products (whether car, home, or health) for risk analysis as well as for litigation management.

For savings products, the domestic bank should have a deep knowledge of other member states’ fiscal framework, inheritance law and customer protection rules to fully respect its duty to advise.

Domestic banks will still benefit from what they believe to be major assets on their market.

Those 3 examples show the existence of high barriers to entry in other member states, questioning new entrants’ ability to offer lower prices than local players.

On the other side, a single market could become a threat if there were no level-playing field between all competitors, whether banks or other market participants, when they offer the same services, that therefore induce the same risks.

In this regard, compliance with a certain number of legislations in force is particularly critical, such as Anti-Money Laundering, KYC and prudential.