Chapters 12-17 Q&A Flashcards
A key feature of European banking systems in recent years has been the consolidation trend that has led to a small number of banks having dominant positions in various banking systems.
Explain why there has been a preference for national consolidation and why there will be placed a greater emphasis on cross-border mergers in the future?
national consolidation offers clearer opportunities for reducing costs and fewer complications handling the merger, due to a normally more homogeneous corporate culture.
More emphasis on cross-border mergers can be explained by competition authorities not allowing further mergers between major players (see p.345-349).
What are the consequences of the creation of a single market for financial services in the EU?
minimum (capital) standards at EU-level; mutual recognition; universal banking admittance; liberalization of non-bank financial intermediaries;
An important regulatory measure affecting EU banking and financial sectors is the Financial Services Action Plan (FSAP) in 1999. What are the main aims and effects of the FSAP?
establishing a single market in wholesale financial services, making retail markets open and secure and strengthening the rules on prudential supervision. T
Why is the EU integration in the retail financial services still quite limited? Give two reasons.
limited cross-border consolidation (due to economic-business factors mainly); double taxation.
What strategies will European corporate banks have to adopt to be successful in the future?
Make a distinction between the years before and after the global financial crisis 2007/09.
Before the financial crisis 2007/09 the focus was on offering a greater range of services (trying to benefit from economies of scale and scope);
Currently, the focus is more on core competencies of the banks
Both long-term and short-term mutual funds with different risk-return objectives play a significant role in the US financial system. What is meant with mutual funds and what is their main attraction for investors?
Mutual fund is a company that pools the money of many investors (its shareholders) in order to invest in a range of different securities (e.g. stocks, bonds, money market securities or some combination of these). The main attraction for investors is that mutual funds provide diversification benefits as their assets are invested in many different securities. See p.397.
Give some benefits and concerns that foreign banks can offer to emerging economies.
Benefits might be a contribution to a greater efficiency and resilience of the financial sector, both
because it implies greater borrowing in local currency (therefore minimising currency mismatches) and
because foreign banks can help emerging economies recapitalise their banking systems. Foreign
banks may also help enhance financial stability by enabling greater lending diversification and by
improving management practices.
Concerns are that a large foreign banking presence can reduce the information available to host country supervisors and can expose a country to shocks due purely to external events affecting the parent bank; the issue of foreign currency-denominated lending; foreign banks ‘cherry pick’ the best firms, leaving the domestic banking sector with a weakened lending portfolio and foreign banks concentrate on large and more profitable firms, leaving small and medium-sized enterprises for domestic banks. See p.440-441.
What is meant with dollarization and euroisation and why some Latin American countries choose for dollarization and some Central Eastern European countries choose for euroisation?
Dollarisation (euroisation) occurs when a non-US (non-EMU) country either adopts US dollars (EMU euros) as a local currency or uses it in parallel to the domestic currency. It is thought to provide a hedge against inflation in the domestic currency and increases the stability of the banking system. See p.444.
