Restrictions to cross-border banking back in firing line

Date: 09/01/1997

By Chris Johnstone

HESITANT progress towards a single EU market in banking services should be boosted early this year when the European Commission proposes an assault on national barriers to cross-border operations.

The outline of new measures to require all obstacles against banks doing business in other member states to pass two tests that their aims are justified and the measures are proportionate could emerge from the Commission as early as this month.

In the Commission's sights are dozens of national rules, often justified on the grounds of consumer protection, which have been used by governments to prevent foreign banks from expanding on their territory.

The problem was highlighted in the Commission's end-of-October assessment of the successes and failures of the single market.

Examples of so-called 'general good' clauses in national legislation, which make it harder for banks to operate in other member states, include bans on borrowers paying back their mortgages early and rules barring bank advisers from making home calls even if they are requested by clients.

The Commission says the confusing patchwork of national rules has discouraged banks from selling their services in other EU countries, if they have not gone to the trouble and expense of setting up subsidiaries to secure a foothold in the market first.

Many have done this, in fact the total number of subsidiaries launched by banks in other EU countries has increased by 45&percent; since 1993.

Belgium, the Netherlands and France have been singled out by the Commission in the past as major users of general good provisions in the banking sector.

The Banking Federation of the European Union supports the Commission's aims, but complains that it has been short changed on earlier promises that a list of general good demands in each EU country would be drawn up to help the industry to navigate the obstacles.

This has now been dropped, says the federation, after national governments gave the idea a hostile reception.

“We regret the Commission could not go further. It would have been easier to have a list of general interest provisions,” said a federation expert.

Internal Market Commissioner Mario Monti has warned that governments can expect a similar attack on national rules which hinder the creation of a true Union market for insurance.

He says general good provisions have been widely abused and a communication on the issue this year will be used to draw a firm line, ensuring that their use is very limited and strictly applied.

One of the biggest problems to be faced in the insurance sector is the fact that cross-border services are at the moment severely discouraged by national rules which only allow tax deductions on premiums when a contract is signed with a locally established company.