The European Union has the largest banking sector in the world; at €33 trillion it is almost three and a half times as large as the euro area’s GDP, while Japan, Canada and Australia’s respective banking sectors amount to twice their GDP and the American banking system is roughly equal to its economic size (Thompson 2013). Although the number of credit institutions has fallen over the past decade (by 1500 institutions), at the end of 2011 there were still about 8000 credit institutions in the EU, nearly three quarters of which are in the euro area (European Banking Federation 2012, pp.6–7). Finance has played a major role in European economic growth, but it has also been responsible for many of the economic and political troubles that plague the EU today. The first section of this chapter looks at the evolution of financial integration in the EU, both theoretically and empirically. Financial services in the EU are traditionally divided into banking, securities markets and insurance.
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