Abstract
The previous decades have seen a frenetic race to high returns on equity coupled with excessive risk-taking, encouraged by a lax monetary policy and accommodating banking regulations. This has led to major changes in the way banks conduct business. The failures of several large banks with unsustainable business models has spurred contagion and contributed to the global financial and Eurozone economic crises. However, not all types of banks are facing the same challenges and/or responding in the same way to crises. This chapter on business models attempts to address the diversity of banks in Europe and to better understand the response function of each category in a crisis situation in terms of performance and risk.
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Notes
- 1.
- 2.
Three-quarters of the banks included in Ayadi et al. (2012) have been identified in the same cluster in this exercise. 85–90% of the banks identified as investment, diversified retail or focused retail in the previous study have been identified as such again. In turn, a large share of the formerly identified wholesale banks are now identified as investment banks.
- 3.
The group of banks identified as wholesale banks has changed substantially from Ayadi et al. (2012). In particular, only 41 % bank/year observations identified as wholesale banks in the earlier study were identically grouped here. An important explanation for this might be the fact that the number of banks and years covered have been increased, which has changed the composition of the sample.
- 4.
The public data on these local banks is often scarce. Many of the local banks are rather small and therefore have to comply with less extensive reporting requirements. This makes the analysis of this group of banks, which make up a significant part of the banking sector, more challenging.
- 5.
The data on losses were obtained from Bloomberg, Banks’ Subprime Losses, August 12, 2008 (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8sW0n1Cs1tY).
- 6.
- 7.
See Ayadi et al. (2014) for a more comprehensive overview of channels used to improve the financial position of banks in recent years.
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Ayadi, R. (2017). Banks’ Business Models in Europe: Are Cooperative Banks Different?. In: Miklaszewska, E. (eds) Institutional Diversity in Banking. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-42073-8_3
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