March 1999
Ingo Walter
ABSTRACT
Launching of the euro at the beginning of 1999 will accelerate reconfiguration of the financial intermediation
process in Europe -- a process that is already well underway -- with dramatic consequences for commercial banking,
investment banking, insurance and asset management functions. Banks, insurance companies and other financial intermediaries
face strategic choices, to be weighed with great care. This paper begins with a series of suppositions - essentially
maximum-likelihood state-variables relating to financial system conditions in the euro-zone, assuming a five-year
time horizon. These suppositions set the framework for a discussion of strategic positioning and implementation
on the part of financial services firms expecting to compete successfully in the euro-zone. We focus on the institutional
microstructure of the financial intermediation process and the determinants of competitive performance. This is
followed by an assessment of strategic options facing financial firms in the euro-zone, and alternative institutional
outcomes from the perspective of efficiency and stability of the euro-zone financial system. Where appropriate,
comparisons are drawn with the U.S. financial system, which has operated under a single currency and since 1865.
The final section of the paper provides some strategy and policy indications for the future.
Subject: Banking, International Finance
Category: Empirical, Institutional
Walters: (212) 998-0707 iwalter@stern.nyu.edu
http://www.stern.nyu.edu/~iwalter/
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