1 Strategies in Banking and Financial Services Firms: A Survey

This survey paper reviews the basic parameters of strategic positioning and execution in multi-functional financial services firms. We begin with a model of financial intermediation between end-users of the financial system as a way of locating specific financial intermediation functions. Shifts in intermediation shares are superimposed on this flow-of-funds profile, focusing on their implications for alternative business models available to financial institutions. The next section of the paper links the structural story to a normative strategic positioning matrix, which combines standard structure-conduct-performance precepts with the potential realization of scale, scope, x-efficiency, market-power, transaction- and information-cost dimensions, as well as imbedded risk exposures and conflicts of interest. The final section of the paper considers the value of natural hedges incorporated into multifunctional business platforms against the accompanying potential for a conglomerate discount in the share price. JEL G2, F23, L23. Keywords: Financial services. Banking. Strategic positioning. Strategic execution. Few industries have encountered as much ’strategic turbulence ’ in recent years as the financial services sector. In response to far-reaching regulatory and technological change, together with important shifts in client behavior and the de facto globalization of specific financial functions, the organizational structure of the industry has been profoundly displaced and there remains a great deal of uncertainly about the nature of any future equilibrium in the industry’s contours. This paper assesses the factors that appear to be driving the structural reconfiguration of the financial services sector, broadly defined, and 1 Paper presented at a Woori Bank conference on banking strategy and performance, Seoul, Korea, 1