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"Once upon a longish time ago, Swiss bankers were solemn men to whom you took the money stashed under your mattress so Oliver Landmann they could stash it under theirs. Not now". (The Economist, February 2nd, 1991) As The Economist has recognized, the banking business is subject to thorough change. Traditional competitive advantages are lost, new ones must be sought. And above all, the rapid globalization of fmancial markets in the recent past has greatly intensified international competition in banking. In view of these developments, the issue of competitiveness in banking has become an urgent research priority. The contributions collected in this conference volume present the ftrst results of a joint research project of the Labour and Industrial Economics Research Unit at the University of Basel, the International Centre for Monetary and Banking Studies, and the Graduate Institute for International Studies in Geneva on the Swiss Financial Sector. TIle Conference was held in Basel on May 16 - 17, 1991. The research project, directed by Professors Alexander Swoboda, Niklaus Blattner and Hans Genberg, is part of the National Research Programme Nr. 28, commissioned by the Swiss Government and administered by the Swiss National Science Foundation. The programme is devoted to the external economic challenges faced by Switzerland. The notion of competitiveness is at the very core of this research programme.

Inhaltsverzeichnis

Frontmatter

Introduction

Introduction

Abstract
These are not the times for complacency in the world of finance. In many ways and everywhere the party is over now. After many years of exceptional growth and success, private investors are cruelly reminded of the sometimes forgotten positive relationship between profits and risk. At the same time the professionalism and the performance demands of the increasingly weighty institutional investors keep growing. In addition, events of singular importance like the crisis of the Banque de Crédit Commercial International increase the likelihood of re-regulation with uncertain effects for an industry that was just about to accomplish the adaptations required by the international move towards deregulation that started in the Eighties. And also, the macroeconomic outlook is rather tarnished, with inflation still not mastered and interest rates persistently high. The growth effects of the restructuring of the former communist economies in Eastern Europe also might take longer to materialise than initially hoped for.
Niklaus Blattner, Hans Genberg, Alexander Swoboda

Competitiveness in Banking

Frontmatter

Competitiveness in Banking: Selected Recent Contributions and Research Priorities

Abstract
There has hardly been a topic in recent years that has attracted more public attention in economics than that of competitiveness. Competitiveness is taken as the essence of what market processes are about. Whether one discusses the economics of a single firm, an industry, a country or even of a continent, sooner or later the question of its competitiveness is raised.
Niklaus Blattner

Comment on Niklaus Blattner: “Competitiveness in Banking: Selected Recent Contributions and Research Priorities”

Abstract
In his survey of recent contributions to the analysis of competitiveness in banking, Niklaus Blattner observes that (i) ‘hardly a topic in recent years has attracted more public attention in economics than that of competitiveness’, and (ii) ‘the ubiquity of the term does not match the clarity of the concept’. In the following comment, I will start from this observation and expand a bit on the semantics of the word ‘competitiveness’.
Martin Hellwig

Comment on Niklaus Blattner: “Competitiveness in Banking: Selected Recent Contributions and Research Priorities”

Abstract
In his selective survey on competitiveness in banking Blattner concentrates on the interesting issue of the competitiveness of market places or financial centres rather than the competitiveness of individual firms. While the notion of competitiveness of an individual firm seems to be well understood by economists they generally feel quite embarrassed when it comes to define competitiveness of a market place, a financial centre or even the competitiveness of a nation. In each case competitiveness of the subject quite intuitively would seem to suggest some sort of economic viability of this subject. Obviously, the viability will depend very much on the conduct of this subject in a given environment as well as on the nature of the environment itself. Therefore, one feels tempted to define competitiveness of a market place basically as the ability of this market to attract positive market shares and hence the ability to survive in a given economic environment. In the sequel I would like to argue that it is the interplay of the market place with its economic environment, which makes the competitiveness issue a particular interesting and politically important one.
Thomas Gehrig

The Swiss Banking Sector

Frontmatter

The Swiss Banking Sector: Development and Outlook

Abstract
Time and again the Swiss banking sector is in the centre of public attention. The interest shown for this branch of the economy has various origins. On the one hand, there are economic aspects and on the other, the political implications of bank transactions in the small country of Switzerland. In the practical debate the economic and political arguments unavoidably merge into one another.
Andreas Bossard, Matthias Wirth, Niklaus Blattner

Comment on Andreas Bossard, Matthias Wirth, Niklaus Blattner: “The Swiss Banking Sector: Development and Outlook

Abstract
Working for one of the banks you just heard about, I would be unwise to do other than support the view Bosshard et al. have just presented. After all, they represent our lobby. Furthermore, there results are very flattering: Yes, we have done very well and we are very competitive internationally.
John Noorlander

Determinants of Trade in Banking Services

Frontmatter

Regulation and Technology as Determinants of International Trade in Banking Services

Abstract
Regulation and deregulation of financial markets, including the banking industry, was traditionally a topic of national rather than international concern because these markets were submitted to numerous regulatory measures and their linkage with other markets abroad was weak. However, after the liberalization of capital account transactions and the deregulation of national financial markets in the beginning of the eighties, regulation and deregulation became a topic of international concern. As the links between national markets became closer, shocks in one country were transmitted faster to other countries. Also, the competitiveness of a country’s financial service industry was at least indirectly affected by such deregulations. Two items on the agenda in international economic policy, namely the Basle accord on capital adequacy requirements of July 1988 and the second banking directive of the Commission of the European Community (EC), have or will have even a direct influence on the competitiveness of national financial markets and industries2. The present paper discusses three elements of special interest from the second banking directive:a) the permission to supply financial services across intra-EC borders,b) the authorization to set up branches and subsidiaries in all the EC countries, andc) the principle of home country control rather than host country control for intra-European operations of EC financial intermediaries.
Thomas Helbling

Comment on Thomas Helbling: “Regulation and Technology as Determinants of International Trade in Banking Services”

Abstract
The paper by Helbling deals with the theory of international trade in banking services. Up to this time, not much of a formal theory of international trade in financial services exists. Consequently, this is a very welcome endeavor which deserves our applause. Helbling is especially interested in regulatory differences between countries as a source of comparative advantage and an influence on trade patterns. To some extent, he also considers other determinants of trade, such as the nature of technology or factor endowments. But his main motivation is to ask how changes in regulations (the creation of regulatory differences) affect trade and banking structures in the international economy, given these other elements. Still another group of factors which might affect comparative advantage and trade in the financial sector is left entirely in the background, such as political and monetary stability and reliability, differences in taxation, the geographical distribution of customers and the international nature of their activities (foreign trade, foreign investment), and the possible importance of customer relationships, to name a few.
Ernst Baltensperger

International Bank Deposits

Frontmatter

The Swiss Position in the International Market for Non-Bank Deposits

Abstract
In recent studies Grilli (1989) analyzed the institutional determinants of external bank deposits by applying a cross-section approach. In this paper, the time series methodology is used to address the question which factors determine movements of the Swiss market share in the international market for non-bank deposits. Asset share equations are specified following the approach taken by Weale (1986), and Barr, Cuthbertson (1989, 1990) who derived asset share equations using the Almost Ideal Demand System (AIDS) as developed by Deaton, Muellbauer (1980) for consumer demand theory. Share equations are estimated for the case of Switzerland for the period 1975 to 1990.
Ulrich Camen

Explaining the Cross-Country Distribution of International Bank Deposits George Sheldon

Abstract
International bank deposits consist of bank accounts where the depositor is not a resident of the country in which the account is held. The largest holders of cross-border accounts are other banks, their deposits contributing roughly 80% to the worldwide stock of international accounts (Grilli, 1989, p. 396). Interbank deposits constitute a far smaller percentage of cross-border accounts in Switzerland, however, making up only about a quarter of its non-resident accounts (Camen, 1990, p. 5). Consequently, Switzerland’s share of the worldwide stock of interbank deposits is small. It amounts to less than 2% compared to 15% in the market for international non-bank deposits (Grilli, 1989, p. 398).
George Sheldon

Comment on Ulrich Camen: “The Swiss Position in the International Market for Non-Bank Deposits”

Abstract
This paper focuses on the Swiss share of cross-border non-bank deposits. The key stylized fact is illustrated in Figure 1 which reveals a dramatic evolution with the Swiss market share being cut in half between 1971 and 1989. The objective is to explain this evolution and thus be in a position to assess future prospects. The paper also contains information on the composition of international non-bank deposits in Switzerland. In the light of this information it appears that the author’s choice to include fiduciary accounts in his analysis was judicious since they may have substituted in large part for other deposits. See Sheldon (this volume) for a different perspective.
Jean-Pierre Danthine

Comment on George Sheldon: “Explaining the Cross-Country Distribution of International Bank Deposits”

Abstract
The rapid and extensive changes occured in international financial markets during the 1980’s are arguably one of the most impressive economic phenomena in recent years. The process of integration of the European markets triggered by the 1992 project and the possibility of a future European monetary union suggest that more changes will be occurring. It is surprising, therefore, that so little academic research has been devoted to the analysis of international financial markets and of international commercial banking.
Vittorio Grilli

Comment on Ulrich Camen: “The Swiss Position in the International Market for Non-Bank Deposits” George Sheldon: “Explaining the Cross-Country Distribution of International Bank Deposits”

Abstract
The papers by Camen and Sheldon represent important contributions to the better understanding of the determinants of banks’ funding behaviour in the international market. I shall comment on each of the papers separately, although some of my remarks apply to both studies.
Julian S. Alworth

International Financial Centres

Frontmatter

On the Attractiveness of International Financial Centres

Abstract
In spite of its growing importance the problem of measuring and explaining the extent to which a financial centre succeeds in attracting competitors from other centres has not yet received a lot of attention in research. A paper by Choi et al. (1986) is among the more creative exceptions to this rule. The authors address the issue of attractiveness (which is one aspect of competitiveness) by investigating the following questions:
In which financial centres are foreign banks represented? How are the financial centres connected with each other? Has the pattern of interconnectedness changed over time? Why do banks prefer some of the centres more than others?
Matthias Jeger, Urs Haegler, Roland Theiss

Comment on Matthias Jeger, Urs Haegler, Roland Theiss: “On the Attractiveness of International Financial Centers”

Abstract
Reading the Jeger, Haegler and Theiss paper reminded me of an incident a couple of years ago. The economic research department at UBS had been asked to survey the reasons why Swiss firms chose to invest in Texas. After reviewing the literature and talking with half a dozen of firms that had recently made such investments — and getting few sensible answers — we began to question instead why UBS itself had established a presence in this “financial center” back in 1980.
Peter Buomberger

Monopoly Power

Frontmatter

Monopoly Power in Swiss Financial Markets

Abstract
This paper investigates the degree of integration between local Swiss credit markets and corresponding external markets. The motivation for the paper is the frequently asserted proposition that Switzerland in a low-interest-rate country and an interest-rate island (Aeberhardt, Zumstein (1990)) on which interest rates move relatively independently of interest rates abroad.
Hans Genberg, Thomas Helbling, Salih Neftci

Comment on: Hans Genberg, Thomas Helbling, Salih Neftci: “Monopoly Power in Swiss Financial Markets”

Abstract
Genberg, Helbling and Neftci analyze retail and wholesale deposit rates on Swiss domestic capital markets. It is an investigation of interest rate differentials. There are two main issues in the paper: one is the degree of integration of Swiss and foreign markets, the other is the consequences of the empirical evidence presented for Swiss monetary policy.
Urs W. Birchler, Werner Hermann

Backmatter

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