1

Why Study European

Financial Systems?

Financial markets are the forerunners of globalisation, so:

2

World Financial Centres

Centres of financial activity are spread all over the world

3

Currencies

are well-known and widely used and traded internationally

4

Financial Institutions

have become international brand names

5

Exchanges

have established (more or less successful) worldwide links and alliances

6

24-hour Trading

Financial products such as currencies and stocks are constantly traded in different time zones

When markets in London and New York are closed, trading goes on in Tokyo.

9 am

5 pm 9 am

5 pm

9 am

5 pm

7

Why Studying Europe?

8

History

Diversity

Specialty

Three reasons

9

History

Many financial systems, institutions and techniques have their roots in early Europe:

Products• bonds• shares

Techniques• forward trading• insurance

Institutions• exchanges• central banks

but not banks; bank-like institutions existed in other regions and eras too.

10

History

Studying how European financial systems evolved in time allows to develop an understanding of

• the reasons behind the development of financial products and trading techniques

• the driving forces of financial innovation

• the circumstances leading to the emergence of rules and institutions

• the determinants of the rise and fall of financial centres.

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Diversity

European financial markets offer the opportunity

• to study a wide range of institutions and systems

• to learn about financial systems by comparing financial structures and characteristics in individual countries

• to learn to distinguish between

– bank-based and market-based systems

– universal banks and specialised ones

– strongly and less strictly regulated financial systems

– formal and informal ways of policy interference

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Diversity

Studying European financial systems may help answering the following questions:

• Which alternatives do exist for building financial systems?

In recent history this question was of particular relevance to late industrialising countries seeking to adjust their financial system to the needs of the economy. One example is Japan which built its financial institutions in the 19th century after careful study of western financial systems.

Today this question matters especially to transition economies such as those of eastern European countries.

• How do financial structures, rules and institutions influence the efficiency of market outcomes?

For example, this refers to debates about bank-based versus market-based systems, the advantages and disadvantages of code-law and common law countries and regulation versus self-regulation of financial institutions.

13

Specialty

European financial systems are special in many respects:

EMU - the unique experiment in history

The euro ranks second in the league of world currencies behind

the US dollar

The European Central Bank is one of the world’s leading central

banks

The world’s largest financial centre is located in Europe

Europe has become the largest financial market worldwide with

the Internal Market Programme

It has a unique system of regional bank supervision

The centre of international financial supervision is located in

Europe

Europe has a long experience of integrating new entrance

candidates into an existing framework of monetary and financial

cooperation which may provide many lessons to other regions.

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What lessons may be drawn from studying

European financial systems by:

• Financial Institutions

• Customers

• Business firms

• Investors

• Winners and losers of financial crises

• International institutions

• NGOs

• Policy makers?