Structural deregulation and market entry: the case of financial services

<p>A major policy initiative over the past decade or so has been the deregulation of professional and financial services. In particular, reforms have been directed at structural deregulation, i.e. the removal of restrictions upon entry to or exit from specified markets and upon the permissible range of a firm's activities. In some cases changes have been achieved via negotiation with self-regulatory professional bodies and in others through legislation and statutory direction. In either event, the effect of removing entry restrictions has frequently been to trigger an inward rush for market positions, typically followed by a later exodus of the unsuccessful entrants. Whatever the long-term consequences of relaxing entry rules, this immediate entry race has attracted criticisms. It has been suggested that it encourages overbidding for existing assets (Wright, Ennew and Starkey, 1992) and the creation of unnecessary capacity. A number of commentators have blamed the severity of the current UK recession on the excesses of credit expansion in the aftermath of financial services deregulation.</p>