Table Of ContentStudies in Contemporary Economics
Editorial Board
D.Bos
B. Felderer
B. Gahlen
H.J.Ramser
K. W. Rothschild
N. Blattner· H. Genberg
A. Swoboda (Eds.)
Competitiveness
in Banking
With 28 Figures
Physica-Verlag Heidelberg
A Springer-Verlag Company
Prof. Dr. Niklaus Blattner
Forschungsstelle rur Arbeitsmarkt
und Industrieökonomik (FA I)
Leonhardsgraben 3
CH-4051 Basel
Prof. Dr. Hans Genberg
International Centre for Monetary and Banking Studies (ICMB)
Avenue de la Paix llA
CH-1211 Geneva
Prof. Dr. Alexander Swoboda
Institut Universitaire de Hautes Etudes Internationales (IUHEl)
Rue de Lausanne 132
CH-1211 Geneva
ISBN 978-3-7908-0607-6 ISBN 978-3-642-48846-7 (eBook)
DOI 10.1007/978-3-642-48846-7
CIP-Titelaufnahme der Deutschen Bibliothek
Competitiveness in banking / N. Blattner ... (ed.) - Heidelberg
: Physica-Ver!., 1992
(Studies in contemporary economics)
NE: Blattner, Niklaus [Hrsg.]
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Preface
"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.
Therefore, the conceptual issues that are raised by several contributors to this volume
with regard to the defmition and measurement of competitiveness are of importance
far beyond the speciftc applications to the banking sector. Too often, competitiveness
is simply identifted with easily observable indicators of performance such as growth
rates, productivity or market shares. The empirical studies in this volume teach us to
look behind such indicators for the complex conditions that generate the often
contradictory developments in different measures of performance. By taking the
perspective and using the tools of industrial economics rather than fmancial and
monetary economics, this volume is opening an interesting and potentially rewarding
avenue of research on Switzerland's banking industty. Considering this industty' s
VI
substantial role as a contributor to Swiss employment and value added (well
documented in this volume), the foundations of its present strength and the
preconditions of its future viability in international competition are certainly worth
investigating.
Although the empirical research reported in this volume centres on the case of the
Swiss banking sector, the general results and the research methodology are of interest
for much more than what they teach us about Switzerland. 'Ibis research is part of a
mostly young, but promising literature on the nature of the international competitive
advantages of fmancial ftrms and the attractiveness of fmancial centres. With the
ongoing global integration of the markets and an evolving regulatory environment,
these advantages are bound to shift and established structures are being transformed.
It is to an understanding of these processes that the strand of research advanced in the
present volume can make a contribution.
Table of Contents
Introduction
Niklaus Blattner, Hans Genberg, and Alexander Swoboda I
Part I: Competitiveness in Banking 7
Competitiveness in Banking: Selected Recent Contributions and Research
Priorities
Niklaus Blattner 9
Comment: Martin Hellwig 41
Comment: Thomas Gehrig 51
Part n: The Swiss Banking Sector 57
The Swiss Banking Sector: Development and Outlook
Andreas Bossard, Matthias Wirth, and Niklaus Blattner 59
Comment: John Noorlander 117
Part ill: Detenninants of Trade in Banking Services 121
Regulation and Technology as Detenninants of International Trade in
Banking Services
Thomas Helbling 123
Comment: Ernst Baltensperger 157
VIII
Part IV: International Bank Deposits 163
The Swiss Position in the International Market for Non-Bank Deposits
Ulrich Carnen 165
Explaining the Cross-Country Distribution of International Bank Deposits
George Sheldon 191
Comment: Jean-Pierre Danthine 221
Comment: Vittorio Grilli 225
Comment: Julian S. Alworth 231
Part V: International Financial Centres 237
On the Attractiveness of International Financial Centres
Matthias Jeger, Urs Haegler, and Roland Theiss 239
Comment: Peter Buomberger 273
Part VI: Monopoly Power 281
Monopoly Power in Swiss Financial Marlrets
Hans Genberg, Thomas Helbling, and Salih Neftci 283
Comment: Urs W. Birchler and Werner Hermann 307
List of Authors 313
List of Participants 315
Introduction
Niklaus Blattner, Hans Genberg, Alexander Swoboda
These are not the times for complacency in the world of fmance. 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
Credit 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.
Furthermore and significantly, the potential of telecommunication and other
innovations as a source of increased efficiency in fmance is by no means exhausted.
As a consequence, the providers of fmancial services have increasingly been
struggling with overcapacity in the recent past, and one might safely foresee more
structural change and an ever increasing drive for cost -effectiveness in financial
markets and banking everywhere.
Not surprisingly therefore, the notion, the defmition, the measurement, and the
explanation of competitiveness in banking have increasingly caught the attention of
researchers as well as of policy makers, particularly in countries where financial
intermediation and securities trading contribute importantly to value added, exports
and employment. Switzerland is, without any doubt, among those countries. Viewed
from the beginning of the Nineties the banking industry in Switzerland is a leading
contributor to economic prosperity and has been for many years and in many ways.
The research project, of which this volume is the outcome, carries the title "The
Swiss Financial Sector at the Turn of the Century". It is fmanced by the Swiss
2
National Science Foundation. The background is described by Oliver Landmann in
the Preface. Our research seeks to contribute to an increased understanding of the
perfonnance of the banking frrrn in general, of the competitive processes at work in
banking markets, of the effects of the regulatory activities and international trade
policies of governments on banking and, in particular, of the links between the
characteristics of competition in the fmancial markets and the monetary and
exchange rate policies of the central bank.
This is clearly a vast programme. Our research teams at the University of Basel,
at the International Centre for Monetary and Banking Studies, and at the Graduate
Institute for International Studies in Geneva, were giyen two years to master several
tasks. The output of the fIrst year of work was presented to a distinguished group of
economists at a conference in May 1991. The papers and the comments are contained
in this volume. While in this flIst conference the main interest was the definition, the
measurement, and the explanation of competitiveness in banking, a second
conference, that will take place in the spring of 1992, will be devoted to banking
perfonnance at the finn level and to a number of specifIc trade, monetary, and
exchange rate policy issues.
The present volume falls into six parts. Part I contains a survey of selected recent
contributions to defming, measuring, and explaining competitiveness by Niklaus
Blattner. He also discusses research priorities and thereby provides an introduction to
a number of other papers on competitiveness, many of them contributed by his
colleagues at the University of Basel. The tenn of competitiveness is clearly loose. It
requires clarification. The position taken can be summarised as follows: First, the
definition of competitiveness should be clearly linked to those attributes of a fInn, an
industry, or a country which stand for its economic viability. Second, the defmition
ought to be precise enough to become an endogenous variable in an analytical model.
Third, the definition should be easily translatable into empirically measurable
indicators. Precisely defined, competitiveness can be analysed. Short of definitional
efforts any discussion is vain. The survey shows that a number of interesting attempts
were made to empirically measure and explain competitiveness in the past. These are
he starting point for the investigations contained in this volume, especially when they
address the issue of a financial centre's attractiveness either to banks headquartered
elsewhere or to depositors from other countries.
3
Part II provides the local background. It is devoted to the description of the Swiss
banking sector as it has developed over the past ten years. Andreas Bossard, Matthias
Wirth, and Niklaus Blattner try to explain what happened and add some thoughts on
the sector's outlook for the Nineties. In particular, the discussion draws the attention
to the importance of what was called "relative attractiveness" by Jones (1980).
Today, when most of the economically important factors of production are
internationally highly mobile, it is very important to understand what determines the
attractiveness of a country to these highly mobile factors of production. The
competitiveness of an individual f1Il1l depends not least on its ability to select the
most attractive location or mix of locations from which to offer its services. Not only
individual f1Il1ls but also whole industries are internationally mobile. This is
particularly true for banking services, the production of which depends less on real
than on human capital. This implies that business operations tend to be run from a
particular country only if it offers special advantages. Put differently, bankers must
face challenges everywhere. Whether they continue to do so from Switzerland
depends on how far that country meets its own challenges as an industrial location in
the coming years.
Directly linked to these considerations is the theoretical discussion contained in
Part m. Thomas Helbling contributes to the modelling of the determinants of
international trade in banking services and especially stresses the importance of the
regulatory framework. He analyses the effects of alternative regulatory regimes as
well as that of liberalising market entry by banks on trade flows in banking services.
According to his model, a country's specialisation in banking depends on three main
factors: the degree of tradability of banking services, the international mobility of the
production factors specific to banking, and the proportion of risk in total service cost.
The model thus helps to clarify the implications of the perspective of "relative
attractiveness" underlined before.
In Part IV the focus shifts back to the empirical considerations. Ulrich eamen
analyses the Swiss share in the market for international non-bank deposits since
1970. He fmds that foreign depositors who select Switzerland nevertheless stick to
US-dollar denomination for their accounts. Other factors than just the stability of the
Swiss franc must additionally explain the attractiveness of Swiss banks to foreigners.
The empirical results point to the importance of the institutional framework, i.e. tax
advantages on fiduciary accounts, bank secrecy, and the safety of Swiss banks. These
factors appear to outweigh the macroeconomic stability of Switzerland. From this the
