Comments on “Economies of scale and scope in French banking and savings institutions” by Ugur Muldur and Mohamed Sassenou

Abstract

Formation of a unified European common market is one of the most exciting economic developments of the late twentieth century. But successful unification will depend crucially on financial integration, because both monetary and fiscal policy operate through the underlying financial structure. Yet financial institutions designed to perform specific social objectives in support of policy may not survive the competitive pressures of integration without an increasingly Byzantine regulatory structure which itself could defeat the original purpose of integration. It is hard to imagine an effective, fully integrated European Economic Community (EEC) in which individual countries each shelter radically different financial structures. As in agriculture, public and private planners, who are considering the optimal design of the financial system, will need to address several knotty issues relating to structure. How many different types of financial institutions will there be? What will be the functions, product mix, and scale of each type? Will unification accelerate deregulation or lock in existing designs and structures? Will current activities, some of which are still protected by tight regulation and close integration of public and private institutions, continue to be served or will these institutions buckle under more powerful international competitive forces? Muldur and Sassenou implicitly address these questions for France by analyzing the scope and scale properties of the French financial system.