Abstract
Abstract Within the international competition of financial systems, Europe faces the question of whether to harmonize regulations towards a bank-oriented or a market-oriented financial system. Except the United Kingdom, all European countries have bank-based financial systems, however with large differences. In order to derive policy recommendations, we review the theoretical literature on welfare effects of financial systems. Neither the theory nor the empirical evidence indicates that one system is superior to the other in all respects. Hence, competition between financial systems should be recommended. However, global competition may induce an anglification of European bank-oriented systems towards the market-oriented system, which may not always be advantageous.
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