Sources of Risk and Return in Different Bank Business Models: Comparing Poland with Global Trends

The deregulation and globalization of financial markets over the last two decades has dramatically influenced the scale and complexity of banking firms. In the pre-crisis period, there were many studies which advocated the development of new strategies which focused on bank efficiency arising from expansion into new markets and new sources of profits and on the adoption of new models for conducting banking activities, based on product synergies, scale and scope benefits and global coverage (Acharya at al 2010). While large scale and in many cases complex organizational structures, with a high dependence on non-interest income and non-depository funding, allowed for dynamic expansion, they nevertheless constituted new sources of risks. The global financial crisis of 2007–2009 forced banks and regulators to rethink strategic and competitive issues in banking. Banks, which for decades had been leaders in global efficiency or expansion, turned out to be most affected, requiring massive public stabilization funds and in some cases rescue by direct government intervention. Investment and global wholesale banks suffered particularly badly. Thus in the post-crisis literature, new techniques, focusing on predicting banks’ default probability have been developed or brought back for review, such as the index of bank distance to bankruptcy (Z-score).