philip r lane : competition policy and central banking remarks by mr philip r lane, governor of the central bank of ireland, at the european movement ireland and central bank of ireland joint dinner in honour of commissioner margrethe vestager, dublin, 24 january 2019. * * * dear commissioner vestager, distinguished guests, i am delighted to host this dinner together with european movement ireland in honour of commissioner vestager. welcome to dublin and welcome to the central bank of ireland. the central banking community takes a strong interest in the competition portfolio held by commissioner vestager. in particular, there is increasing evidence that the level of competition and the vigour of competition policies are key factors in determining macroeconomic performance and long - run living standards. for instance, the recent empirical research of guttierrez and philippon ( 2017 ) and dottling et al ( 2017 ) finds that investment rates are negatively correlated with indicators of market concentration. moreover, the incentives for the leading firms in an industry to innovate are weaker in the absence of competitive pressures. taken together, less investment and less innovation imply lower productivity growth and lower living standards. one factor behind the different patterns by which market concentration is rising in the united states but not in europe is the vigorous approach to competition policy in the eu ( gutierrez and philippon 2018 ). importantly, this also maps into better outcomes for consumers, with prices higher in less competitive sectors. more competition also improves the prospects for workers by limiting the monopsony power of dominant employers to constrain wages. in addition to macroeconomic performance, competition policy ( and related state aid decisions ) is also influential in shaping the european financial system. the process of restructuring the european financial sector in the aftermath of the crisis has been disciplined by the imperative to maintain a level playing field. in terms of adjudicating the design of state aid interventions, the implementation of this principle is not always straightforward and this remains an ongoing challenge under the revised european bank recovery and resolution regime. a fundamental development in recent years in the euro area has been the initiation of banking union. as commissioner vestager herself remarked earlier this month : “ the fundamental strength of our internal market is its size ” ( vestager 2019 ). in the aggregate, the european banking system is quite fragmented : the development of banking union has the potential to deliver a more efficient, more competitive and more stable pan - european banking system. in the transition to banking union, we may expect to see an increase in cross -

, bank accounts, credit intermediaries ). one of the legislative initiatives that requires special attention is the proposal for a directive on payment services. the proposed directive, which is part of the wider single european payments area project, aims to establish a modern and harmonised legal and operational framework necessary for the creation of an integrated retail payments market, which would enable payments to be made more quickly and easily throughout the eu. the proposal also aims to introduce more competition in payment systems and facilitate the realisation of economies of scale. this will improve efficiency and reduce the cost of payment systems for the economy as a whole, an issue of high importance to the bank of greece, as electronic payments systems are not very much in demand in greece. future challenges supervisory architecture within the eu lately, several discussions have revolved around the issue of the eu supervisory architecture, one of the arguments being that the complexity of supervisory arrangements increases in parallel with the growth of a banking group's cross - border activity. without dismissing these concerns, we do not share the view that the conduct of cross - border activities is connected with a significant supervisory burden. on the contrary, the most important obstacles to the expansion of cross - border activity in the banking sector are the differences in the tax treatment of banking products among different states, cultural differences and the lack of proximity ( except in the case of branches ). different views on the supervisory architecture advocate alternative models of supervision, ranging from complete centralisation to total decentralisation. each approach has its own merits, but also raises a number of complicated strategic and operational issues that need to be addressed. i believe that in no way should extreme solutions be adopted and instead implement the lamfalussy approach, which though is not a panacea, has the definite advantage of allowing for a lot of flexibility. first of all, it provides for a range of different degrees of centralisation in the regulatory process, which would entail a more or less harmonised set of rules depending on the issues that need to be addressed. in this way, it facilitates the swift adaptation of community legislation to new developments in the financial markets, which in many cases have cross - sectoral dimensions. moreover, it boosts regulatory and supervisory convergence while at the same time allowing for the efficient handling of differences arising from the fact that the vast majority of the 8, 000 credit institutions in the eu operate domestically and sometimes even locally, in markets with diverse characteristics and which can better be assessed by local supervisors, as the