Following the formal presentation, Mr. Monti took questions from the audience.

Following the formal presentation, Mr. Monti took questions from the audience.

ANDREW CROCKETT: Thank you very much, Mario, for a most comprehensive and illuminating address. We have about 15 minutes or so for observations and questions from the audience. I would ask you to raise your hands high enough so that our BIS friends can see them, and I will then call on you.

QUESTIONER: Thank you for that address. When I was head of my country’s competition authority, the very first case I had to deal with related to an alleged restrictive trade practice involving the central bank, which had been helping to organize the distribution of commemorative coins in a quite illegal way. After some thought, we let them off with a warning, but it meant that I have been quite focused on what goes on in the financial system that can be potentially anticompetitive, and the tension that is there in the financial system with regard to electronic payments, payment and settlement systems, potentially lender of last resort, and financial market rules broadly, and I wonder if you have any thoughts about that as an area of competition policy and sometimes the tension that is there between the way the market works, the concern about destructive competition, and so forth.

MARIO MONTI: It is interesting to learn of other cases besides John Vickers of people who have been active on both fronts of monetary policy, as you now are, and of competition policy as you were in the past. Yes, concerning the financial markets, there may be tensions. You know the subject more directly than I do. There may be tensions between competition policy and, particularly, prudential concerns. I referred to the fact that over the years it has been possible to minimize the extent of the inconsistency between the two concerns.

I think that this is a subject on which actually more and more, both the monetary and supervisory authorities and the competition authorities are working. I mentioned at the end of my presentation the ICN, the International Competition Network. Last year in Bonn when the ICN met, a list of recommended best practices was issued on the application of competition in the regulation of banks. That document goes a long way toward articulating principles of competition policy that could enhance the competitive tone of the financial and banking markets while giving due regard to stability. Similarly, I mentioned earlier cross-border mergers. In the European merger regulation there are three legitimate grounds for national governments to obstruct cross-border mergers. These are national security, the protection of pluralism in the media, and, indeed, prudential concerns as regards financial institutions. It is all too clear that the reference to prudential concerns can be used in a disproportionate way so as to create an obstacle to any disliked cross-border merger. That is why the European Commission is currently working on possible changes to the banking directive, which would define more narrowly and with a more specific burden of proof the use of prudential concerns as a good reason for a national authority to oppose a cross-border merger.

ANDREW CROCKETT: Thank you. Mario, could I take up your last point and the point you made toward the end of your address concerning international collaboration? Do you think it is either feasible or desirable for the ICN, as it is now, which I understand is an informal network, to develop in the direction of the organization that is our host here today, that is to say, in some respects developing minimum standards that will be done by agreement among the relevant authorities such as we have in banking regulation? And/or to develop in the direction of regular meetings to discuss current issues as takes place in the bimonthly meetings of Governors in the BIS?

MARIO MONTI: The creation of the ICN in 2002 came after many years of discussion between the United States and the European Union. The European Union was in favor of something closer to what Sir Andrew mentioned now. We would have liked to see within the World Trade Organization (WTO) the establishment of key binding principles on competition legislation. This would not have involved giving to the WTO the power of reviewing decisions taken in individual cases by the national or EU competition authorities—not even the EU dared to consider this—but at least giving it the power to establish principles like transparency, non-discrimination, and due process, to be respected in drawing up national legislations. And we thought that if that was done in the context of the WTO, there could have been a binding element that would have been helpful.

The United States at the time was against all forms of multilateral cooperation in antitrust, much as they were keen, on the other hand, on the bilateral cooperation. There was an interesting change in policy at the end of 2001, when the United States, following a review conducted by the Justice Department, was open for the first time to some sort of multilateral cooperation, but definitely not in the binding context of the WTO. So we welcomed this opening and we settled for an informal multilateral cooperation, the ICN.

Could this evolve one day toward something more similar to the BIS? I think not for the short to medium term insofar as binding elements are concerned; but, yes, in terms of having closer and closer discussion. Indeed, the ICN is a virtual organization that works mainly through working groups conducted electronically, and it has already produced a number of guidelines, for example, in the handling of merger cases that are being respected, by the different jurisdictions, even though there is no binding element. So it is a very soft convergence process. I believe it is the most that can be achieved so far. I hope one day there will be something more structured and formalized.

ANDREW CROCKETT: The next question?

QUESTIONER: How should competition authorities view the attempts by monetary authorities to maintain the separation of commerce and industry on one side, and banking on the other?

MARIO MONTI: Do you mean in terms of ownership? Separation between commerce and industry on one side, and banking on the other side: well, as far as I know, the laws and the practices to that effect diverge remarkably in different countries.

In general, I would say that so far, competition authorities have been concentrating more on the markets for goods and services, although they have on occasions dealt with the markets for corporate control. Let me note here that there is an aspect of the ownership issue that is of crucial importance, but where in Europe the treaties have established neutrality, that is, private or government ownership of companies.

So for example, if an industrial company or a financial institution is owned by a government that does not intend to put on the market the shares of that company, the control of that company will not be contestable. Does this violate EU competition rules? No, it does not. Nevertheless, of course, that company, even though it is government controlled, has to observe the competition rules in the market for its products and cannot be helped by state aid.

I believe your subject is not government versus private ownership, but is on the ownership and the control of financial institutions by nonfinancial entities. At least in Europe, I do not see elements of competition policy that could allow the EU to challenge a national law that puts restrictions on who can own a bank because that restriction is anticompetitive. But if I were still a competition authority, I would reflect with keen interest on your question because there might be something to be developed. Sorry for this very approximate answer.

ANDREW CROCKETT: We have time for one last brief question.

QUESTIONER: Thank you. I found your remarks both intriguing and stimulating indeed on the relationship between competition policy and monetary policy. I am not sure I have a question or an observation, which basically says, for competition policy, when you see a monopoly, I guess you get very nervous and you are planning to do something about it. And yet, one of the fundamental points in creating a monetary system is that you want to ensure that a central bank has the monopoly over the production of what we call base money, or something of that type, because we want to ensure that it is the right amount of the public good that is generated, etcetera. Which suggests, therefore, that while there are fantastically interesting relationships between competition policy and monetary policy, there are some fundamental distinctions between them because we do probably want to ensure that that kind of monopoly stays.

There were some attempts by the Hayekians and Mises, the free banking and the like, which created tremendous difficulties in understanding how monetary systems should work. I assume there is a counterpart to it also in the discussions of fixed versus flexible exchange rates—do you allow competing monies to be side by side or not? The Gresham’s Law: do you allow relative prices of monies to adjust in order to prevent bad money driving out good? So those are fundamental issues in monetary economics.

MARIO MONTI: Thank you. That is extremely interesting, though I am not sure that what you say, which is of course perfectly correct, points to such a difference, because competition authorities hate monopolies, but they also are a monopoly themselves, just like a central bank. So this brings us to the notion that to exercise certain categories of public policy powers, you have to enjoy a monopoly situation.

To develop a bit, in the case of competition authorities, it is generally felt that there should be a monopoly, and in the United States, they feel a bit uneasy because of the fact that at the federal level there are two antitrust agencies, the Justice Department and the Federal Trade Commission, in part with overlapping competences which the Congress, by the way, refuses to clarify. So normally it is felt that it is a good thing also in the competition arena that those enforcing public rules be monopolists. With one exception, though—and it would be interesting to explore whether something similar exists in the monetary area, probably not. The exception is that there should be monopoly as to public-enforcement in a given jurisdiction, but the enforcement of competition law does not need to be done exclusively by public enforcers. So the public enforcer in the jurisdiction should be one. But there is also a complementary modality of enforcing competition law which is called private enforcement, that is, enforcement through the courts, with damages for violations of competition law.

To give you an idea, in the United States it is estimated that of all the competition enforcement actions taking place in one year, roughly 10 percent are done by the two combined federal agencies, and 90 percent by the courts under private enforcement. In Europe, the situation is completely different, and only now is an attempt beginning to have some private enforcement alongside public enforcement.

So an element of monopoly is probably required in the two policies we have been discussing this morning. Normally it tends to exist both for the central banks and for the competition authorities. In the case of competition policy, there is also this other element—private enforcement.

ANDREW CROCKETT: Mario, thank you very much for both the very thought-provoking address and the very open way in which you have answered our questions.

Competition Policy and Monetary Policy: A Comparative Perspective