Risk in a Changing Environment

In the decades preceding the 1970s banking was a relatively ordinary and well understood business. Banks were at the same time intermediaries between suppliers and users of funds and managers (and sometimes takers) of risk. Profitability was good, risks were acceptable, competition, though present, was not especially intense and innovation was generally slow. The clear division in countries such as the US and Japan between commercial banking and investment banking, with no real encroachment on one another’s territory, added to the relatively comfortable worlds of each business. Even in European countries, where the concept of ‘universal banking’ was already widely practised (where an institution could have a presence in retail, institutional and investment banking), a few dominant banks controlled the market and were not under pressure to innovate, change or compete.