THE FINANCIAL CRISIS AND THE ROLE OF COMPETITION AUTHORITY IN BANKING SECTOR

Policy intervention in a crisis has to combine the support measures to protect financial stability and the desire to maintain strong competition. In this sense, the competition authority has to watch for distortions on competition. In the first part of the paper, we focus on the EU competition authority that has played an active role during the financial crisis, because it has the unique capability to control state aid and it affects the degree of competition and dynamic incentives through merger policy. Further, we present the mergers of institutions backed by government subsidies or guarantees in Europe Union during the crisis. We concluded that some of member countries have used the merger regulation to fend off foreign entry, because the European legislation allows member states to block a merger to protect financial stability. In the second part of the paper, we show that the emergency measures taken to remedy the crisis have the potential to harm competition. Although the authorities' main concern during the crisis was to restore financial stability, it is now important to fix the potential negative competitive effects of state aid, acquisitions, capital injections and bailouts. Either way, the citizen pays: as taxpayer and/or as consumer through higher prices. In all cases, efficiency and competition are harmed, often with long-term consequences. Therefore, we finally stress that competition policy and enforcement has played an important role in the response to the crisis.