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THE CHANGING STRUCTURE OF BANKS INCOM
EMPIRICAL INVESTIGATION1
E Philip Davis
Brunel University
West London
and
Klaus Tuori
European Central Bank
Frankfurt
Introduction
In recent years, the changing nature of the banking and financial services indu
increasing focus of policy interest and of academic study. It has been argu
deregulation accompanied by technological development has changed the env
financial intermediaries, and in particular banks, are operating. In Europe, furth
seems likely to be provoked by EMU, in particular changes linked to the integ
financial markets (De Bandt 1998). Depending on the point of view of the commen
may be seen as (i) necessary and welcome progress towards a more efficient fina
provides financial intermediation more cost-efficiently and allocates capital more
been previously the case; and/or (ii) they are seen as threatening to financia
development towards a financial system that is prone to crises at frequent intervals
One aspect of overall financial change is a shift in the pattern of business undertak
is thought to be manifested in a relative increase in fee and other non-interest
interest income. Among the key underlying factors have been increased compe
banks and vis--vis securities markets), which has put interest margins under pre
securitisation, which has increased the scope for non-interest earnings; an
requirements, which encourage economy in the use of capital by various off-balanc
comm.on with the United States and Japan, these features have of course been pr
of EU countries, albeit to a varying degree.
1 E Philip Davis is Professor of Economics and Finance at Brunel University, who was formerl
European Central Bank. Klaus Tuori was also formerly an economist at the European Central Ba
this work was undertaken while Davis was at the ECB. Davis is also a Visiting Fellow at NIESR
the LSE Financial Markets Group, Associate Fellow of the Royal Institute of International Affa
of the Pensions Institute at Birkbeck College, London. Views expressed are those of the authors a
of the ECB or Bank of England.
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