Achieving Economic Sustainability in CESEE Countries
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 2: Changes in banking in the run-up to the crisis
In the years preceding the global financial crisis that started in 2007, the landscape of banking had undergone major changes. Global financial institutions had grown ever bigger in size and scope and their organizational complexity had increased, adding to their opacity. They had become strongly interconnected via increasingly long chains of claims as well as correlated risk exposures, arising from increasingly similar investment strategies. Their leverage had strongly increased and the average maturity of their own funding had shortened. Behind these trends were forces that intensified competition in banking; technological development and deregulation. Advances in information technology as well as in investment theory and practice meant that commercial banks faced increasing competition on both the liability side and the asset side.
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