Reflections

Abstract

This study has been concerned with the process of financial intermediation in general and the role of banking in particular. It has explored competition among banks and other financial intermediaries, with specific implications for the asset allocation process and pricing policies of banks. The empirical evidence on the structure of EU banking in chapter 2, the review of studies of banking competition outlined in chapter 4, the theoretical contributions presented in chapter 5, and the empirical work reported in chapter 6 — all suggest the same overall conclusion: banking in the EU may continue to remain as diverse in experience under the competitive pressures associated with EMU as it has been since before the inception of the Single Market Programme. With this general conclusion in place, the remainder of this section focuses on what are thought to be the original contributions that this study makes to the economics of financial intermediation and, especially, to banking. The contributions can be generally classified into four broad categories²⁷¹:

• elevating the role and function of banking in terms of finance theory

• making contributions to the theory of banking competition

• identifying and explaining the relationship between the term structure of interest rates (yield curve) and bank pricing; and finally

• explaining banking system responses to yield curve impulses — with special reference to the distinctions between retail and wholesale assets

.

A noted in the introduction, the findings of chapter 2 are not summarised here because the material was drawn from the other research and is not considered to be an original contribution of this study, even though this author was one of the contributors to the EU (1997) study.