Adapting to Financial Globalisation by Morten Balling, Elizabeth Hennessy, Eduard H. Hochreiter

By Morten Balling, Elizabeth Hennessy, Eduard H. Hochreiter

In response to a colloquium held via SUERF together with the Austrian nationwide financial institution, this publication addresses the problem of adapting to the calls for of economic globalisation, a urgent preoccupation of bankers monetary associations and fiscal professionals.

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Further difficulties exist or existed in some countries. In France, for example, the privatization process was not completed until recently: its 24 Jacques de Larosière and Eric Barthalon importance superseded any other considerations for private sector operators. The profitability of private commercial banks is dented by the mutual sector, which is very large in France. And the implementations of synergies in the face of large restructuring is slowed down by the rigidity of labor markets and the sensitivity to layoffs.

However, increasing competition in the banking sector can also have a risk increasing effect. Shrinking profit margins due to more intense competition make it more difficult for banks to rebuild capital after a negative shock and increases incentives for (excessive) risk taking. Thus, fiercer competition also increases the probability of bank failures and systemic risk. Contagion risk as well as the risk of eroding profit margins raise the vulnerability of financial institutions. Ladies and gentlemen, This raises the question of whether current regulatory and supervisory arrangements are adequate.

The same can be expected in retail banking, even though there remain many national specificities (regulatory, tax, legal) that still fragment the market. For various reasons, economic development argues in favor of an ever larger critical size (in terms of assets or market capitalization): • • Clients of banks (in wholesale banking) have changed in size, because they (corporate, insurance, other banks) have been merging for some time. The wave of mergers in the non-banking sector calls for – or can influence – mergers between banks.

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