Phil Molyneux

Market structure and performance in European banking

It is a peculiar feature of European banking markets that, in almost every country, a handful of large banks tend to emerge over time, whether through government encouragement, or the workings of the market mechanism. From a general perpec-tive, however, it is difficult to evaluate the competitive implications of increased concentration. The traditional structure-conduct-performance (SCP) paradigm would suggest that increased concentration fosters collusion and anti-competitive practices whereas the efficiency hypothesis suggests otherwise. This paper presents tests of the two hypotheses with respect to the European banking industry using pooled and annual date for the period 1986 to 1989. The results generally support the traditional SCP paradigm as an explanation for the market behaviour of European banks.

The crisis in UK banking

Unparalleled turmoil in the banking system over the past two years has impacted severely on the UKs economic prospects. What was once a profitable, fastgrowing, dynamic and highly innovative banking sector has been publicly humiliated, while its lending capacity has stalled. This article highlights the evolution of the credit crisis in the UK, as the fallout from American subprime lending and the housing market bubble spread rapidly across the Atlantic. Lessons from the crisis and policy recommendations are considered, focusing on rebuilding bank liquidity and capital, strengthening bank supervision and regulation, and improving risk evaluation and risk management practices throughout the banking and financial system.