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Changing Business Models in Banking and Systemic Risk

In: Management of Permanent Change

Author

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  • Thomas P. Gehrig

    (University of Vienna)

Abstract

The changing economic environment did affect the nature of banking in a profound way. Both easy monetary policy causing low interest rates as well as increasing globalization exerting competitive pressure on lending margin significantly reduced net interest margins in traditional lending. In particular, after the high interest rate period of the late 1980s long-term lending and house-bank relations did suffer severely. As a reaction the banking sector at large increasingly focused on short-term trading and investment banking. This process was accompanied by regulatory incentives and internal governance structures. In particular, the increasing focus on short term compensation based on return on equity, together with the Basle process of capital regulation opened ways of reducing loss absorbing capital and thus undermining banks’ stability as well as the resiliency of the banking sector at large. Both, the reactions of business models to a changing competitive environment as well as reactions to monetary as well as regulatory policy significantly contributed to systemic risk in Europe and the US.

Suggested Citation

  • Thomas P. Gehrig, 2015. "Changing Business Models in Banking and Systemic Risk," Springer Books, in: Horst Albach & Heribert Meffert & Andreas Pinkwart & Ralf Reichwald (ed.), Management of Permanent Change, edition 127, chapter 8, pages 145-160, Springer.
    • Handle: RePEc:spr:sprchp:978-3-658-05014-6_8
    DOI: 10.1007/978-3-658-05014-6_8
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    Cited by:

    1. Giovanni Ferri, 2016. "Regolamentazione bancaria: serve un cambio di approccio," ECONOMIA E DIRITTO DEL TERZIARIO, FrancoAngeli Editore, vol. 2016(3), pages 383-408.
    2. Gehrig, Thomas & Iannino, Maria Chiara & Unger, Stephan, 2024. "Social responsibility and bank resiliency," Journal of Financial Stability, Elsevier, vol. 70(C).
    3. Anjan Roy, 2021. "Business segment diversification of private banks in India," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(3), pages 295-308, September.

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