A review of Banking Business Models

Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB has given an insightful speech on Bank’s business models.

She first says why banks are special and why they need to be studied seperately. Then  looks at business models of banks post Glass Steagall Act and how they have changed after deregulation around the world.  She points to changes in both – revenue side (increased relaince on non-interest income) and liabilities side (increased relainmce on wholesale markets than retail deposits) of bank’s balance sheet over the years.

Towards the end  says:

I started this speech by briefly describing why banks are special. The last two years have painfully stressed how special and important they really are. When the financial system fails, the whole economic system is affected. The financial sector has undergone an unprecedented wave of innovation, change, consolidation and now crisis. We now have a better understanding of the business models that may not be sustainable, but there are still many open questions.

For example, will future capital requirements provide banks with better loss bearing capabilities and the economic system with less procyclicality? How can future compensation and corporate governance principles support the long term value creation of banks? And, how can risk management practises and risk pricing models better represent possible gains and losses? 

Overall, there seems to be no simple answer on banks’ best practises and their business model. Therefore, we need the contribution of the academic community for the future design of banks’ business models and for the policies supporting them. I am – of course – already looking forward to this conference providing some answers to the important questions at stake.

There has been a lot of research/discussion on regulation of banks/non-banks. However, little has flown in terms of what should be the business model of banks? There were some initial suggestions that banks should get back to basic banking and some have even suggested of narrow banking. However, much is still in grey. We need more ideas….

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8 Responses to “A review of Banking Business Models”

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  6. sysca Says:

    nice info, thanx

  7. Reiner Hohn Says:

    Please talk only about things you know. The pronoun “he” indicates that you have not even an idea who the person Gertrude Tumpel-Gugerell is. That puts the credibility of your blog content down to ZERO!

    • Amol Agrawal Says:

      Thanks for the pointer. It was an error. I don’s think writing wrongly about the gender leads to poor quality of the blog. The blog is about research in economics not about identifying gender of the people.

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