The Environment of the EU Banking System (2ww-39065)

Banks are defined as a business organization that performs services in relation to money. Specifically is the process of keeping money for customers and paying it out on demand, in the form of deposits, borrowings and exchanges. It has become a clich to note the revolutionary impact of information technology (IT) upon any industry, but the real upheaval lies just ahead. As experts back in the 90s stated, "If the number-crunching mainframe computers of the 1970s formed the childhood of IT, and the flowering of personal computers during the 1980s marked its youthful adolescence, then the 1990s seem likely to see the passage of IT into adulthood".

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As it has been foreseen, during the 21st Century, technology became directly related to almost every single activity and function of a bank. Deposits, withdrawals, loans, transfer of capital and updating are just some of the functions that are carried out electronically, as computers support communication networks or ATMs.

In the late 1990s, banks have come to realize even more and understand better the importance of technology since they have tried to take advantage of its progress. The computer sciences and all aspects in telecommunications, with particular emphasis on the Internet capabilities, constituted one of the most profitable areas banks decided to invest. These two fields of technology have had the greatest potential for growth and profitability.

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Currently, as the banks anticipate the rapid IT growth potentials, they continue to give a lot of emphasis on the technology of e-banking-the transactions with banks through Internet-and e-commerce of products and services. Noticeable is the fact that almost every bank in the globe currently offers e-banking services via their Internet links.

During the past ten years, a trend has emerged as major banks or groups of banks have formed alliances with companies in the telecommunications and computer sciences fields, or in other diverse industries. For example, in the UK, two Scottish banks have joined up with major supermarket chains in order to provide an outsourced banking function for the so-called supermarket banks. The motive for such kind of strategic decisions was the profit from a dynamic field that showed revenues increasing in a rapid rate.

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Furthermore, it is true that the Banking Sector throughout Europe has gradually restructured itself in order to be able to meet the challenges provoked by the unification that has recently reached the milestone of twenty-five member states.

Operating in this new environment, banks have to confront some major issues, such as the intensification of competition, the technology breakthroughs referring to transactions, the globalism of capital and money markets, the development of management and administration, the extensive use of derivatives, the development of international transactions and the introduction of financial innovations.

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Thus, EU banks in order to cope with the fundamental forces mentioned above, are trying to find ways to improve their productivity and effectiveness, reduce their costs, upgrade the quality of the services they provide, intensify their presence in new markets, reduce the exchange risk, and finally achieve great macroeconomic stability.

Experts state that the upcoming changes will also force banks to reconsider their position in terms of effective bank size, economies of scale in the new environment, creation of a new powerful capital base, globalisms of the activities as well as of the wide variety of product/service lines they provide to customers.

According to the estimations of "International Monetary Fund" and the "Organization for Economic Co-operation and Development", it is a fact that the banks have already invested significant capitals to new technology applications, while most have already introduced "personalized" services for their European or global customers.

About the author: Jonathon Hardcastle writes articles on many topics including Finance, Education, and Investing