Introduction

Deregulation and financial innovation in the 1980s have deeply affected the liability side of banks' balance sheets, through the twofold challenge of the spread of institutions and instruments directly competing for the funds traditionally channelled into deposits, often non- or low and regulated interest-bearing, and of the savers' enhanced financial sophistication. The banks have experienced changes on the asset side as well, because of the shift from top customers, able directly to access financial markets, to medium–smaller business debtors and to households; further-more, lending abroad has widened.

The overall increase in the exposure to asset risk, the reduced chances to rely on the cheap stable inflows from savers and the severe stance of monetary policy, curtailing the room for easy adjustments in case of liquidity needs, have urged changes in the asset and liability management. Concurrent regulatory developments (such as the BIS minimum asset-to-capital ratios) have called for a strengthened equity position.

The end results on the funding side have been an enlarged range of new (marketable) instruments, a move from personal to market relationships with customers, a reduction of the room allowed to cross-subsidisation practices and a structural increase in the average cost of funding.

Our aim in this chapter is to provide a broad overview of the changing patterns in banks' liabilities structure of the four larger continental European countries (France, Germany, Italy and Spain) and of Japan, the United Kingdom and the United States.