As Emu approaches its January 1 1999 target starting date, many of the confident assumptions of a few months ago have once again been called into question. Will there be Emu at all? If so, when will it start? And which countries will participate at the outset? From the banking sector perspective, however, two factors are constant. First, if Emu comes there will be radical implications for the competitive environment. Second, no bank can afford to be unprepared.
Looking superficially at the likely effects of Emu on banks it would seem that, at least in the short term, banks' customers will be the winners and banks the losers - facing lower revenue because of fewer foreign exchange transactions, probable erosion of competitive positions in home-currency capital markets, and greater competition for payments traffic. In addition, banks will have the "opportunity" to spend money on systems conversions, staff and customer education and physical currency logistics that seem unlikely to generate direct fee revenue from customers. Many banks have provided estimates of their conversion costs. We suspect that the items covered by these estimates vary from bank to bank, and that some of the higher figures include unrelated elements such as measures to deal with the millennium software bug or systems enhancements.