The Impact Of Intellectual Capital In The Banking Industry

The reduction in profitability is one of the main issues that European banking system has been facing over the last years.The upward trend of the overall cost income ratio, together with the increase in competition characterizing the financial services sector, is aggressively pushing banks to review their operational strategies.According to local authorities, the solution to be implemented would be a dramatic reduction of all operating costs, paying particular attention to staff expenses. In this regard, it is important to notice that the banking industry is a service-based and knowledge-driven industry, thus characterized by an intensive exploitation of intellectual capital.This paper thesis aims to investigate whether labour cost cutting can be considered as the best solution to be implemented, without hesitation, to effectively face the fall in banks’profitability.In the attempt of answering to this question, based on data collected from fifty European banks over a period of four years (2009-2012), a regression analysis and a cross-country comparison are performed in order to further explore the role of intellectual capital in the banking sector in terms of impact on banks’financial performances.According to the results obtained, the problem of profitability of banks should be re-evaluated taking into consideration alternative measures to improve their operational business model instead of focusing on a dramatic workforce reduction.