K. Alec Chrystal and Cletus C. Coughlin identify and examine the impact of the "1992” regulatory changes that pertain directly to banking and other financial services. The authors view the 1992 reforms as a small step toward the liberalization of the financial services sector. The reforms will prove to be beneficial, but the extent of the gains are unlikely to be large. The reason, they say, is that virtually all of the potential efficiency gains in the financial services sector can be (or have already been) achieved by abolishing exchange controls and allowing foreign firms to enter domestic markets. The key innovation of the 1992 legislation is the split between home country authorization and host country conduct of business rules. This dichotomy will create problems, especially regulatory complications. Whereas wholesale markets already are highly integrated, 12 quite different retail markets will continue to exist in the near future. The authors stress, however, that the advent later in this decade of a single currency for the European Community will cause pressures to revise the regulatory structure so that the conduct of business rules become homogeneous.