Table Of ContentCONTRIBUTIONS
TO
ECONOMIC ANALYSIS
204
Honorary Editor:
J. TINBERGEN
Editors:
D. W. JORGENSON
J. WAELBROECK
NORTH-HOLLAND
AMSTERDAM · LONDON · NEW YORK · TOKYO
FINANCIAL REGULATION
AND
MONETARY ARRANGEMENTS
AFTER 1992
Edited by
Clas WIHLBORG
Department of Economics
University of Gothenburg
Gothenburg, Sweden
Michèle FRATIANNI
School of Business
Indiana University
Bloomington, IN, U.S.A.
Thomas D. WILLETT
Department of Economics
Claremont Graduate School
Claremont, CA, U.S.A.
1991
NORTH-HOLLAND
AMSTERDAM · LONDON · NEW YORK · TOKYO
ELSEVIER SCIENCE PUBLISHERS B.V.
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P.O. Box 211, 1000 AE Amsterdam, The Netherlands
Distributors for the United States and Canada:
ELSEVIER SCIENCE PUBLISHING COMPANY INC.
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Library of Congress Cataloging-in-Publication Data
Financial regulation and monetary arrangements after 1992 / edited by
Clas Wihlbcrg, Michèle Fratianni, Thomas D. Willett.
p. cm. — (Contributions to economic analysis ; 204)
Includes bibliographical references and indexes.
ISBN 0-444-89083-1
1. Financial services industry—Government policy—Congresses.
2. Monetary policy—Congresses. 3. Financial services industry-
-Government policy—Europe—Congresses. 4. Monetary policy—Europe-
-Congresses. I. Wihlborg, Clas. II. Fratianni, Michèle.
III. Willett, Thomas D. IV. Series.
HG63.F56 1991
332.4*94—uc20 91-33789
CIP
ISBN: 0 444 89083 1
© 1991 Elsevier Science Publishers B.V. All rights reserved.
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INTRODUCTION TO THE SERIES
This series consists of a number of hitherto unpublished studies, which are intro-
duced by the editors in the belief that they represent fresh contributions to economic
science.
The term "economic analysis" as used in the title of the series has been adopted
because it covers both the activities of the theoretical economist and the research
worker.
Although the analytical methods used by the various contributors are not the same,
they are nevertheless conditioned by the common origin of their studies, namely
theoretical problems encountered in practical research. Since for this reason, busi-
ness cycle research and national accounting, research work on behalf of economic
policy, and problems of planning are the main sources of the subjects dealt with, they
necessarily determine the manner of approach adopted by the authors. Their
methods tend to be "practical" in the sense of not being too far remote from appli-
cation to actual economic conditions. In additon they are quantitative.
It is the hope of the editors that the publication of these studies will help to stimulate
the exchange of scientific information and to reinforce international cooperation in
the field of economics.
The Editors
Vil
Preface
This volume contains the proceedings of a conference held in the city of Gothenburg on
May 21-23,1990, preceeded by a planning conference held on the island of Marstrand just
north of the city on September 6-7, 1989. The conferences were organized to launch
financial and monetary economics as a major focus for study and research at the School
of Economics and Commercial Law within the University of Göteborg. With the city's
traditional role as the major port and center for international trade activity in Sweden it
was natural to focus the conferences, as well as the school's education and research
program, on international aspects of monetary and financial economics.
The major objective of the conference was to stimulate research on the linkage between
structural and regulatory development in the financial services industry, on the one hand,
and monetary arrangements and exchange rate regimes, on the other. A second objective,
with the background of rapid development of a framework for economic integration in
Western Europe, was to analyze and discuss potential future regulatory policy conflicts
among insiders in the European Community (EC), as well as between the EC and major
"outsiders". These objectives are discussed in more detail in the Objectives and Overview
chapter.
It is risky to produce a volume such as this one, containing the proceedings of a
conference on a topic in rapid development. The academic papers are sufficiently general,
however, not to depend for their relevance on specific reforms within the EC.
Contributions within this volume discussing reforms from the perspectives of individual
countries run a greater risk of being overtaken by real world events. The risk is small,
however, since the formal reforms that take effect before the end of 1992 provide only
a framework for further development of EC-institutions and regulation during the
foreseeable future.
Major unanticipated events did occur during the planning period for the conference. The
Berlin Wall fell, Soviet domination of Eastern Europe was broken, and market oriented
reforms were initiated even within the Soviet Union. For a while, it looked as if the 1992
process was going to stall in the face of the overwhelming transition problem facing the
former communist bloc. Reforms within the EC continued, however, and they may even
have obtained greater urgency.
One session was added to the conference in order to incorporate the East European
perspective on financial market reform in the EC, and on problems of transition to
convertibility of currencies. The participants also obtained a vivid account of the
negotiations between East and West Germany on conditions for creating a German
monetary union. Hans-Joachim Huss came directly from the conclusion of these
negotiations to the conference. His insightful after-dinner presentation of the historic
agreement was highly appreciated.
My deepest gratitude for contributions to the success of the conference, as well as to the
completion of this volume, goes to Ms Karin Hane, my assistant in the Department of
VIH Preface
Economics. Without her administrative and organizational talents and capacity, the
conference would not have reached even the planning stage. She understood and handled
with great skill the complexity (unforeseen by myself) o fthe organizational task. Similarly,
without her efforts this volume, with all the extra work related to the preparation of a
camera-ready manuscript, would not have been completed.
I am also grateful to Jan Nilsson, President of the University of Göteborg, and Lars
Nordström, Dean of the School of Economics and Commercial Law, for their support.
Valuable input during the conference or to the preparation of this volume has been
provided by Goran Andersson, Mats-Ola Forsman, Anders Johansson, Joao Loureiro, Asal
Maher, Cunwu Pan, Lulseged Yohannes, and Max Zamanian, Ph.D. students in the
department of economics, and Boo Sjöö, research fellow in the department.
Finally, I would like to thank the sponsors of the conference, whose contributions were
essential complements to Karin Hane's skills. Skandinaviska Enskilda Banken, Volvo, and
PK-banken (now Nordbanken) were sponsors at an early stage. I am grateful to Otto
Wrangel, Lennart Jeansson, and Mikael Wallgren in these firms for their personal support
that made the planning conference possible. Additional support was obtained from Första
Sparbanken, Handelshögskolefonderna at the Gothenburg School of Economics and
Commercial Law and the Center for Economic Policy Studies at the Claremont Graduate
School. Last but not least, I would like to thank the Tore Browaldh, Jan Wallander
Research Foundations at Svenska Handelsbanken for sponsoring the main conference.
Gothenburg, June 7, 1991
Clas Wihlborg
Felix Neubergh Professor
of Financial Economics
List of Conference Participants
Marstrand, September 6-7, 1989, and Gothenburg, May 21-23, 1990
Sven Arndt Professor, Claremont McKenna College, Claremont
Göran Bergendahl Professor, Gothenburg School of Economics and
Commercial Law
Stanislav M. Borisov Professor, Institute of World Economy and Foreign Relations,
Moscow
William H. Branson Professor, Princeton University
Franco Bruni Professor, Bocconi University, Milan
Richard Burdekin Professor, Claremont McKenna College, Claremont
Wlodek Bursztyn Dr, Gothenburg School of Economics and Commercial Law,
Nigel Carter Dr, Bank of England, London
Emil-Maria Ciaassen Professor, University of Paris-Dauphine, Paris
J. Kimball Dietrich Professor, University of Southern California, Los Angeles
Patricia Dillon Professor, Scripps College, Claremont
Igor G. Doronin Dr, Institute of World Economy and International Relations,
Moscow
John Driffill Professor, Queen Mary and Westfield College, University of
London
B. Espen Eckbo Professor, University of British Columbia, Vancouver
Gunnar Eliasson Professor, Director, The Industrial Institute for Economic and
Social Research (IUI), Stockholm
Emil Ems Senior Officer, Economic Affairs Department, EFT A, Geneva
Peter Englund Professor, University of Uppsala
David Folkerts-Landau Deputy Chief of Financial Studies, International Monetary
Fund, Washington, DC
Elena Folkerts-Landau Dr, World Bank, Washington, DC
Thomas Franzén Dr, Deputy Governor, Central Bank of Sweden, Stockholm
Michèle Fratianni Professor, Grad. School of Business, Indiana University,
Bloomington
Alberto Giovannini Professor, Grad. School of Business, Columbia University,
New York
Reuven Glick Dr, Federal Reserve Bank of San Francisco, San Francisco
Linda S. Goldberg Professor, New York University
Morris Goldstein Dr, International Monetary Fund, Washington
Charles Goodhart Professor, London School of Economics
Daniel Gros Dr, Centre for European Policy Studies, Brussels
Thorvaldur Gylfason Professor, University of Iceland, and IIES, Stockholm
Jürgen von Hagen Professor, Grad. School of Business, Indiana University,
Bloomington
List of Conference Participants
Mats Hallgren Senior Advisor, Skandinaviska Enskilda Banken, Stockholm
Bengt Hane Director Financial Relations, AB Volvo, Gothenburg
Robert Hodrick Professor, Kellogg School of Management, Northwestern
University, Chicago
Bengt Holmström Professor, Yale School of Organization and Management,
New Haven
Hans-Joachim Huss Dr, Ministry of Finance, Bonn
Michael Hutchison Professor, Bank for International Settlements, Basle, and Crown
College, University of California, Santa Cruz
Jan Häggström Dr, Svenska Handelsbanken, Stockholm
Lars Jonung Professor, Stockholm School of Economics
Björn Kârfalk Vice President and Treasurer, AB Volvo, Gothenburg
Karen K. Lewis Professor, University of Pennsylvania, Philadelphia, and
New York University
Nils Lundgren Dr, Nordbanken, Stockholm
Johan A. Lybeck Professor, Gothenburg School of Economics and
Commercial Law
Michael Melvin Professor, College of Business, Arizona State University, Tempe
John O. Montgomery Dr, Board of Governors of the Federal Reserve System,
Washington DC
Niels Chr. Nielsen Professor, Copenhagen School of Economics and Business
Administration
Eva Nisser Financial Consulting, Stockholm
Yoshiharu Oritani Manager, Research Division, The Bank of Japan, Tokyo
Lars Oxelheim Professor, Gothenburg School of Economics and Commercial
Law, and IUI, Stockholm
Richard Portes Dr, Centre for Economic Policy Research, London
Aris Protopapadakis Professor, Claremont Graduate School, Claremont
Tad Rybczynski Professor, City University, London
Anthony M. Santomero Professor, The Wharton School of the University of
Pennsylvania, Philadelphia
Stefan Schönberg Dr, Deutsche Bundesbank, Frankfurt
Boo Sjöö Dr, Gothenburg School of Economics and Commercial Law
Göran Skogh Professor, School of Economics and Management,
Lund University
Roy C. Smith Professor, Stern School of Business, New York University, and
Goldman Sachs, New York
Ulf Sternhufvud Dr, Skandinaviska Enskilda Banken, Gothenburg
Richard M. Sweeney Professor, School of Business Administration, Georgetown
University, Washington, DC
Hans T:son Söderström Dr, Centre for Business and Policy Studies (SNS), Stockholm
Hiroo Taguchi Dr, The Bank of Japan, Tokyo
Niels Thygesen Professor, University of Copenhagen
Ingo Walter Professor, Stern School of Business, New York University, and
INSEAD
Sir Alan A. Walters Director, Putnam, Hayes & Bartlett, Washington, DC
Roland Vaubel Professor, University of Mannheim
List of Conference Participants XI
Steven R. Weisbrod President, Weisbrod Group Ltd, New York
Clas Wihlborg Professor, Gothenburg School of Economics and
Commercial Law
Per Wijkman Dr, EFTA Secretariat, Geneva
Thomas D. Willett Professor, Claremont Graduate School, Claremont
José Vinals Dr, Bank of Spain, Madrid
Pehr Wissen Dr, Svenska Handelsbanken, Stockholm
List of Tables
Table 1 Banks and Average Balance Sheet Items 29
Table 2 Country and Bank Market Data 31
Table 3 Bank Average Operating Statistics by Country 31
Table 4 Correlation Coefficients between Banking
Market Variables
32
Table 5 Estimation of Value Added and
Factor Share Equations 34
Table 1 Volume of Completed International Merger
and Corporate Transactions (USA) 102
Table 2 Volume of Completed International Merger
and Corporate Transactions (Europe) 103
Table 3 Rankings of Industry Groups of U.S. and
European M&A Seller Companies by SIC Code 105
Table 4 Rankings of Industry Groups of U.S. and
European Buyer Companies by SIC Code 107
Table 5 Pearson Correlation of U.S. and European
Industries Participating in M&A Transactions 109
Table 6 Correlations of Top 25 Industry Group of U.S.
and European M&A Seller Companies by SIC Code 110
Table 7 Correlations of Top 25 Industry Group of U.S.
and European M&A Buyer Companies by SIC Code 111
Table 8 Pearson Correlation of Weighted Values of U.S.
and European Industries Participating in
M&A Transactions 112
Table 9 Volume of Completed Intra-European M&A Trans-
actions by Country 113
