Bank Competition: A Changing Paradigm

I am grateful for this opportunity to make some policy remarks concerning the very title of this conference, namely among banks: good or bad? This is the case not only because it is always very difficult, at least for me, to invent a title for my remarks, but also because the question is highly stimulating, and the answer - as your discussion today has illustrated - is not at all obvious. The attitudes towards the market economy are not unambiguous. As a matter of fact, no market participant really likes competition. Businessmen tend to praise the competition they practise vis-a-vis other firms, but they usually blame competition when they suffer as a result of it. The ethical attitude of a businessman, like that of a shopkeeper, is very often not to compete, and not to make life difficult for other people in the same profession. Competition ranks even lower in the financial businessmen's favours. This is so because banking activity is closely related to a sense of security, especially security concerning the future. Also, according to many people, the instability that, at least at the level of the individual firm, is inevitably brought about by a competitive system is really not congenial to banking. The Governor of the Bank of Italy in the 1950s - a person who is still held in high regard, years after his death - maintained the view that competition among banks was something to be feared as a potential source of serious disruptions. I belong to a generation which has seen a complete change of attitudes. 2. My remarks will refer to this change, touching on four points. First, I will elaborate on the journey from what I call the old to the new approach, namely from the approach prevailing when I was a student and during my early years as a central banker to that which has been developing subsequently and towards which I, to some extent, have contributed. Second, I will discuss how far this new approach can go. Third, I will bring into the picture aspects relating to the international dimension. Finally, I will address the specific aspects of the euro area dimension. Professor Padoa-Schioppa, a member of the Executive Board of the European Central Bank, presented these remarks as the keynote speech during the conference dinner.