Abstract

The increasingly competitive environment poses challenges to bankers. This paper emphasizes relationship banking as a prime source of the banks» comparative advantage. The proliferation of transaction-oriented banking (trading and financial market activities) does, however, seriously challenge relationship banking. We identify two key dimensions. First, competition from financial markets destabilizes (traditional) durable relationships. We argue that, contrary to what many believe, banks may optimally respond by increasing relationship-specific investments. Second, transaction-oriented activities increasingly become an integral part of banking institutions. In the context of the Barings debacle we illustrate how transaction-oriented banking may undermine the banks» competitive edge in relationship banking. G20, G21.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.