Review of Industrial Organization 15: 357–365, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.
Regime Effects of EU Market Integration Policies
on the UK Financial Sector
ROBERT M. FEINBERG
Department of Economics, American University, Washington, DC 20016-8029, U.S.A.
RICHARD K. HARPER
University of West Florida, U.S.A.
Abstract. Standard equity capital market methods are used to estimate the share price effects in the
UK market of the recent change in regime implied by passage of key provisions implementing the
European single banking market. Empirical results indicate that events associated with increasing the
likelihood of passage of the new Merger Control Regulation and the Second Banking Directive had
positive valuation effects for the portfolio of UK ﬁrms involved in banking services.
Key words: European Union, merger control, ﬁnancial market regulation, single banking market,
Prior to the December 1989 adoption of the EU Merger Control Regulation (MCR),
European policy towards mergers and joint ventures was enforced primarily through
a patchwork of member nation agencies and regulations. The Treaty of Rome
did not permit the vetting of mergers before they were consummated; however,
through Articles 85 and 86, the European Commission increasingly challenged
mergers (though without great success) in the late 1980s as merger activity grew in
anticipation of the completion of the single market. A merger or joint venture could
thus potentially be investigated by each of the two national authorities involved as
well as by the Commission.
The MCR provided “one stop shopping” for ﬁrms
seeking regulatory approval for mergers, while also providing a more credible
threat than previously that cross-border anti-competitive mergers could be stopped.
But in promoting market integration in the ﬁnancial sector, the Second Banking
The authors thank James Hartigan, Stephen Martin, and an anonymous referee for suggestions
at various stages of this research. All errors and omissions are our own of course.
The dilemma facing ﬁrms was well put by then-competition commissioner Peter Sutherland:
“Is it really acceptable that the same mergers between different companies in different member states
should be subject to differing national laws, with the distinct possibility that conﬂicting decisions will
be reached resulting from the fact that member states could apply different criteria?” (Euromoney