Do We See Risk Premium in European Banking Business Models? The Investment Services Distribution Case

Posted: 5 Apr 2016

See all articles by Paola Musile Tanzi

Paola Musile Tanzi

SDA Bocconi; Università degli Studi di Perugia

Elena Aruanno

Independent

Mattia Suardi

Independent

Date Written: April 4, 2016

Abstract

Business Model Analysis is acquiring increasing visibility in the European banking regulatory framework, following the EBA guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) to assess business and strategic risks (EBA, 2014; EBA, 2015). Starting from a selected literature review, in our paper we analyze the investment services distribution business models firstly by comparing European niche players with European banking global players and, secondly, comparing European niche players among themselves, to understand the evolution of investment services distribution business models at European level.

We consider a sample of European financial players from 2009 to 2014. Our focus is on France, Germany, Italy, the Netherlands, Spain and the UK; overall our handmade data set is based on 162 Annual Reports. We follow two main questions: I) Do the niche players, focused on the investment services distribution area, have an upper limit on profitability, compared to the global players, risk-takers in many financial areas? II) How is the niche players business model changing, facing the increasing competition and the regulatory pressures?

Answering the first research question, the best net profitability is noted in the niche players group; the global players, as risk takers, achieve a worse remuneration, in contrast with the risk premium theory. The results were assessed over a limited period of time, however deemed in line with the companies strategic planning horizon.

Answering the second research question, we focus on the European investment service distribution niche players area, using a cluster analysis. We identify three different business models: a) most dynamic niche players, combining the investment services and the insurance and welfare services, able to achieve the highest margin and stability; b) players focused mainly on asset management production, the key vulnerability for them is the degree of open architecture, especially in light of the MiFID 2 implementation; c) players mainly focused on creating well-structured on-line platforms, offering also brokerage services, thus reducing their marginality and potentially increasing their business risk.

Our research gives some inputs for those interested in deepening the business and strategic risk assessment both for the global banks and the investment services distribution niche players.

Suggested Citation

Musile Tanzi, Paola and Aruanno, Elena and Suardi, Mattia, Do We See Risk Premium in European Banking Business Models? The Investment Services Distribution Case (April 4, 2016). Available at SSRN: https://ssrn.com/abstract=2758561

Paola Musile Tanzi (Contact Author)

SDA Bocconi ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

Università degli Studi di Perugia ( email )

Via Pascoli, 20
Perugia, 60123
Italy

Elena Aruanno

Independent ( email )

Mattia Suardi

Independent ( email )

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