Handbook of International Banking
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Handbook of International Banking

Edited by Andrew W. Mullineux and Victor Murinde

The Handbook of International Banking provides a clearly accessible source of reference material, covering the main developments that reveal how the internationalization and globalization of banking have developed over recent decades to the present, and analyses the creation of a new global financial architecture.
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Chapter 4: The New World of Euro Banking

Jean Dermine


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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