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We document the development of the major international banks since the late 1990s, analyzing balancesheet data for 27 large and complex financial institutions. We argue that the balance-sheet expansion and business line diversification have paved the way for the rise of the universal banking model. This model, apparently sound and efficient in the run-up to the crisis, revealed all its shortcomings when the crisis erupted. European banks displayed greater fragilities in their business models. This changed financial and regulatory landscape that followed has challenged this model further. Many have proposed remedies to the global financial crisis and appear to consider returning to a narrower model for the banking activity. [ABSTRACT FROM AUTHOR]

Policymakers in the EU member states are currently shaping rescue packages to prevent the financial crisis hitting their economies with unmitigated force. Each government is responding to the emerging problems with a country-specific set of measures. Given the global nature of the crisis, would coordinated action at the European level not be a better approach? Was the German government — much-criticised for its initial reluctance to adopt massive fiscal stimulation measures — right after all to exploit the option value of waiting in a situation of high uncertainty? [ABSTRACT FROM AUTHOR]