Magazine article Global Finance

Banking in the 21st Century

Magazine article Global Finance

Banking in the 21st Century

Article excerpt

As the world's banks enter the new millennium they face a confusing paradox. On the one hand, they need to be bigger, more diversified, and offer more comprehensive services in order to compete globally. On the other hand, in a rapidly changing market, only the most nimble will survive.

European banks are facing the toughest challenges as they wrestle with the implications of the single currency and play catch-up on technology. Mergers have been picking up pace as banks seek to defend their positions by consolidating. More consolidation is expected, particularly through cross-border mergers, although clouds are already gathering over the mergers and acquisitions arena. Analysts are beginning to realize that mergers between banks, particularly from different countries, are not necessarily a good thing. Efficiency gains can easily be outweighed by culture clashes, while strict employment laws in continental Europe mean the scope for rationalization is limited. More worrying, research by the US Federal Reserve into a string of US bank mergers shows the deal erodes shareholder value as often as it increases it. It means shareholders will be much more skeptical about potential mergers in the future, leaving the banks struggling to find new ways to drive down costs and increase business.

The major banking groups' sloth is leaving the field wide open for new players, particularly Internet banks. With low overheads-and the benefit of being in fashion-Internet banks in Europe are wresting customers from their cumbersome old rivals in droves.The same is true in North America, and the traditional banking world will have to run fast to keep up. Some banks are getting the picture; others are stubbornly resisting the enormous changes. Experts predict those banks that do not radically alter their business models will be left far behind. …

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