Over the last three decades, differential national regulation
in conjunction with increasing capital mobility has given rise to
trenendous growth in the Eurocurrency markets. In this paper, we
analyse whether the announced plans of the European Commuission to
remove barriers to capital flows (in July 1990) and to harmonize
other financial regulations (by the end of 1992) will have a
major effect on the Euromarkets.
The analysis in this paper revolves around the concept of the
Net Reguatory Burden (NRB). Three variables will play a crucial
role for the developnent of the Euronarkets after 1992. These are
(1) reserve requirements on bank deposits, (2) taxation of
residents and non-residents on interest income, dividends and
capital gains, and (3) disclosure of interest and dividends to
tax authorities. Presently there is considerable variation in
these factors across Europe. Competitive pressures should lead to
a convergence of regulation, but national sovereignty leaves open
the possibility for sone divergence of the NRB across European
countries, and in comparison with other financial centers such as
Switzerland. These differences in NRB will play a key role in
determining the location and size of Euromarkets after 1992.
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