Strategic Groups in European Commercial Banking

Despite contrary expectations of both researchers and practitioners, the European monetary union has so far not led to a discernable convergence of the roles of commercial banks in different European financial systems. This empirical study aims to shed more light on these structural differences by analysing the strategic positions of 624 commercial banks from 12 European countries. Based solely on their market-based and resource-based profiles in 1999 and not on their respective country of origin, banks are classified into nine distinct strategic groups. Applying discriminant analysis and logit models indeed reveals remarkable differences concerning the strategies pursued by banks from different countries. Strongly divergent market positions in terms of business risk exposure, asset growth patterns and the relative importance of loan and fee businesses in conjunction with only minor differences in terms of efficiency ratios and the skill levels of employees imply that banks face vastly different national market environments. Our empirical results may explain why national banking markets are still dominated by domestic players and indicate that performance differentials are not so much driven by technical and scale efficiencies but much more by (achievable) market positions. JEL-Classification: G21, L1, P51