How to reform those systems is a hotly debated policy issue. Much of this debate has centered on universal banking and the relationship between banks and financial markets. These issues have particular importance for the European Union. The stated goal of creating a single European financial system, without any barriers between member countries, implies a movement toward a single kind of financial system. The theories that have been invoked to justify many of the moves to market-based systems are based on traditional neoclassical models.
Competition is thought to be desirable because it leads to increased efficiency.
Opening up new financial markets is thought to be desirable because it offers increased risk-sharing opportunities. Much of the financial reform that has occurred in countries such as France and Spain has been concerned with moving away from a German-style intermediated system and allowing access to global financial markets. In doing this they gain the advantages of cross-sectional risk sharing. However, they may be losing the advantages of intertemporal smoothing and other forms of risk sharing. It may be that this change is desirable, but it is important that the trade-off be properly understood before moving in this direction.