ABSTRACT
During the last two decades, financial innovation has evolved rapidly and banking systems have experienced substantial changes in both their business and income structure. The banking firm has become more complex and diversification, risk management and higher participation in capital markets have happened to be some of the main pillars of modern financial intermediation. Within this context, it appears to be relevant to study how financial innovation has affected bank strategies and, in particular, bank margins.1 There are three important factors that should be taken into account in this analysis:
1 Regulation has determined, to a large extent, the importance of the impact of financial innovation on bank margins. There are significant differences across countries in terms of the activities that banks have been permitted to undertake.2
