Elgar original reference
Edited by Andrew W. Mullineux and Victor Murinde
Chapter 4: The New World of Euro Banking
Jean Dermine INTRODUCTION Two main questions are addressed in this chapter. How does the move from national currencies to the euro alter the sources of competitive advantage of banks? What are the main strategic options available to ﬁnancial ﬁrms? A structural analysis of the banking industry raises the question of the importance of a national currency factor. For instance, the markets for pension funds and mutual funds management, or the euro–franc and euro–lira bond markets, were quite fragmented, with domestic institutions capturing a very large market share. Although this fragmentation is explained in part by regulations and history, it did reﬂect the importance of national currencies. Another example is the leading role of American investment banks in the dollar-denominated eurobond market. Does the emergence of a new world currency competing with the US dollar help the competitiveness of European banks? This chapter attempts to show how, besides an obvious loss of intra-European currencies’ trading business, the introduction of a common currency changes fundamentally the sources of competitive advantage of banks. This calls for a major review of strategic options. The chapter is structured as follows. In Section 2, the origin of European Monetary Union is brieﬂy reviewed. Eight impacts of the euro are identiﬁed and analysed in Section 3. In Section 4, the strategic options available to banks are discussed. Section 5 calls the attention of regulators to the challenge raised by cross-border mergers, and Section 6 concludes. 2 THE ORIGIN OF EMU: A REMINDER...
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