Financial institutions in the 15 member countries of the European Union are suffering the adverse effects of the worldwide economic downturn according to TowerGroup. In an effort to staunch the bleeding from the simultaneous deterioration of multiple lines of business, EU institutions have been forced to combat rising cost/income ratios with rigid cost-cutting and restructuring measures, claimed the organisation. However, the firm declared that despite this intense focus on cost-cutting, IT spending will grow modestly over the next three years. ‘The old adage that you must spend money to make money will hold true, with EU institutions focusing on applying technology to drive down the cost of operations,’ said TowerGroup. The group believes it is not the universal banking model itself that is critically flawed, but rather the execution of this model. Many financial firms in the EU have rapidly pursued market share in too many aspects of investment banking, rendering them cost-laden and vulnerable to financial market sways. The research found that EU financial institutions are currently undertaking massive restructuring efforts to combat erosions in profitability, driving a more pronounced emphasis on cost-cutting than among their US counterparts. This is primarily a result of the European universal banking model, which exposes these institutions to simultaneous downturns across their diverse financial services businesses.
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