Brussels, 13/10/2010 (Agence Europe) - If European policymakers, big financial institutions and social partners cannot agree on the full extent of reform, then Europe's financial services sector runs the risk of being plunged back into the unsustainable situation of chasing short-term profit with high risks. That is the stark warning from Dublin-based Eurofound's European Monitoring Centre on Change (EMCC) in its new report, Financial Services: challenges and prospects.
The main aims of the report are to: (1) review the debate on the regulation of financial markets; (2) identify the main drivers of change in the sector; (3) analyse responses to the crisis in the banking and insurance sectors; (4) look in detail at the business models in European financial services; (5) develop scenarios for the potential adaptation process of the European financial services sector.
The report examines a number of company cases and Europe's leading banks and financial institutions according to their new business models and approach: (1) the profit-oriented “liberal” bank pressing for minor regulatory change (Deutsche Bank, Barclay's Bank), (2) the “state-owned bank” which undergo massive reorientation of business strategies and restructuring under public scrutiny (Royal Bank of Scotland), (3) the “sustainable” bank with its stronger customer orientation, less leverage and less ambitious profit targets (Rabobank).
The report suggests three potential adaptation scenarios for the European financial sector. Firstly, the “high risk status quo scenario” assumes that the big players are strong enough to ensure that no major reform of the financial system takes place, and allows the high-risk/high-profit trading activities of the past to continue. Then the “new world order for financial markets” scenario sees the G20 governments agreeing a fundamental reform of the world financial system in December 2010. Implementing these rules will terminate the “golden age” of financial business and improve the chances of creating sustainable business models for companies in the financial services sector, benefiting customers, people working in the sector, and the market as a whole. Finally, the “divided economies” is the worst case scenario, in which the international regulation of financial markets fail, resulting in rising default rates and overburdened public budgets, forcing some governments in the euro zone to large-scale liability cut and the liquidation of a series of banks. All scenarios are expected to cause further job reductions, albeit at different levels.
The report shows again that the financial services sectors are dominated by companies that have re-focused on their core business in an effort to return to profitability, albeit at the expense of considerable job cuts. In 2009, roughly 10% of jobs in the state-owned banks examined were cut, compared to around 5% in the surveyed private banks following a liberal business model. One part of the European financial sector is in state ownership, and some institutions will remain under this control for a longer period of time, the report found. A second part of the sector, which is building up a sustainable business model, performed with minor job losses. A third group continues to deal in liberal capital markets with a strong profit orientation.
The report was presented to Pervenche Berès, chair of the European Parliament employment and social affairs committee, on Wednesday 13 October by Eurofound Director Jorma Karpinnen and Research Manager Radoslaw Owczarzak. For further information, go to: http://www.eurofound.europa.eu (G.B./transl.rt)