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Competition and Profitability in European Banking: Why Are British Banks So Profitable?

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Author Info
David T. Llewellyn
Abstract

Substantial differences remain between the profitability of banks in different European countries. This article considers the relationship between competition and profitability in European banking focussing on the experience of the UK where two issues are considered: why British banks have been earning excess returns for more than a decade and why British banks seem to be more profitable than their Continental counterparts. A paradigm is offered to explain this. A distinction is made between shareholder value (SHV) and stakeholder value (STV) banks whose business objectives are often different. Significant differences exist between European countries in the balance of SHV and STV banks. The UK is almost unique in Europe in having almost exclusively SHV-based banks. Pressures will intensify for all European banks to adopt SHV strategies, which will imply substantial changes in bank strategies and business operations. Copyright Banca Monte dei Paschi di Siena SpA, 2005

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Article provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.

Volume (Year): 34 (2005)
Issue (Month): 3 (November)
Pages: 279-311
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Handle: RePEc:bla:ecnote:v:34:y:2005:i:3:p:279-311

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  1. Beckmann, Rainer, 2007. "Profitability of Western European banking systems: panel evidence on structural and cyclical determinants," Discussion Paper Series 2: Banking and Financial Studies 2007,17, Deutsche Bundesbank, Research Centre. [Downloadable!]
  2. Matthews, Kent & Murinde, Victor & Zhao, Tianshu, 2006. "Competitiveness and Market Contestability of Major UK Banks," Cardiff Economics Working Papers E2006/6, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
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