Three studies in European banking

Abstract

This thesis focuses on the perfonnance and strategy of small EU banks and their relationship with their target market segments: Small and Medium sized Enterprises (SMEs) and private households. To this end, three distinct lines of research are pursued in this thesis. We start with an investigation of whether small EU banks benefit from diversification within and across business lines, and the impact that the regulatory environment has on such diversification strategies. Second, we examine the determinants of bank financing relationships for SMEs from a bank, SME and regional dimension. Following this, we investigate the evolution of the funding strategies adopted by small EU banks and analyse whether customer deposits are still a key funding source in their overall strategic focus. Using different economic approaches and different samples, we present robust evidence that small EU banks do not benefit from direct diversification benefits within and across business lines and an inverse association between non-interest income and bank performance is observed. Bank and firm level variables are found to have both negative and positive impacts on SME bank financing relationships, with the regional growth and fmancial system variables showing that relationship banking can be affected by the market and socio-economic structure of specific European regions. Customer deposits are still featuring strongly within EU small banks' balance sheets and are still the main driver in their provision ofloans to SMEslhouseholds which confirms the importance of such banks in the economic growth of regional Europe. The empirical results give rise to numerous important public policy considerations. Against a background of increasing consolidation in European banking systems and significant changes in the regulatory environment within which fmancial institutions operate, our analyses suggest that small EU banks still have a major role to play in the European financial arena. The financial intermediation process between banks and SMEs/households is still prevalent and the evidence shows that this fosters growth in the regions we analyse. Obstacles that hinder such growth between SMEs and banks is limiting their potential expansion in both scale and scope.

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