global i say tion

8/12/2019 Global i Say Tion

1/10

The glob

Abstract

The world banking syste

decades. There have been drama

and banking technologies, the wi

less open economies, and the incinstitutions, have created new op

While these transformations hav

intensified the completive pressu

Keywords: Globalization, Com

Research in Business and E

The globalization of commercia

lization of commercial banking

James B. Bexley

Sam Houston State University

Paul BondSam Houston State University

Bala Maniam

Sam Houston State University

has gone through many transformations in th

ic regulatory changes, considerable advances i

despread dominance and acceptance of the mar

rease and integration of international financialportunities and challenges for international ban

provided an expanded opportunity set for ban

re in the global banking arena as well.

ercial Banking, Banking Technology, Internati

onomics Journal

banking, Page 1

last several

information

ket economy by

arkets anding institutions.

s, they have

nal, Markets


2/10


3/10

expansion. Thus, banking global

linked to the growth of the bankMany studies of globaliz

system of any country in the wo

may be positive or negative, and

system is to maximize the positimade to a number of serious eco

the following analysis.First there needs to be a

dealing in financial derivatives.

funding sources, the issuance ofthe banking system, the diversifi

securing holding companies. In

engaging in new investment area

privatization at the income levelmainly in currency transactions,

insurance issuance through sisteholding companies for the benefiWith increasing globaliz

and had to be cautious about risk

strengthening capital. The criteriwas approved by the Basel Com

as a global criterion. Banks were

risk assets after weighting them

While Basel reform continues goformal capital requirement for b

integration of global markets for

swaps mechanism and arbitraginallowed the possibility of banks

activities in the various financial

forced banks and other institutioappeared to expand the scope of

speed, innovation and meet the n

knowledge is an important facto

require conversion strategies to echallenge of competitors.

Through a review of the

banks, we can say that the most ithe change in product mix with i

especially human resources, for

legislation. The identification ofin which there is a comparative a

relative later on must be identifi

banking services continuously srather than relying on traditional

control their costs. There needs t



ization draws on several reasons and, at the sam

and its expansion while enhancing its capabilittion indicate that it has a large-scale impact on

ld. The economic effects of globalization on th

the task of those in charge of the management

e effects and minimize the negative ones. Refenomic effects of globalization on the banking s

iversification of banking activity and the tende

his includes the diversification of banking serv

marketable deposit certificates and long-term loation of loans granted and the establishment o

ther words, bank debts need to be transferred t

s such as investment banking and the financing

to engage in non-banking areas, then the tendenissuing of securities, the establishment of inves

insurance companies for the management of in t of customers.tion, banks became exposed to risks both exter

s using several means. The most significant of t

on of capital adequacy became increasingly imittee in 1988, and it became necessary for ban

affected but this criterion as the ratio of their c

gainst credit risks must reach at least 8% by th

through different stages, it is a reality that it winks of all nations. Globalization refers to the u

both capital and money markets. This must be

g accompanying for differences in internationalnd other financial institutions management to c

markets throughout the world simultaneously.

s to compete with one another. At the same ti the market, reduce cost and maximize profit thr

eeds of the consumer. In order to achieve these

of production. In order to be competitive bank

xpand geographically and to open new markets

ost important global and local changes and th

mportant challenges facing banks today are thencreased competition, and obtaining the resourc

he new roles and requirements of the applicatio

the banking strategy in which the bank should sdvantage, and which advantages may develop t

d by the bank. The bank must expand the prod

that they may become integrated and conveniefinancial services to achieve profit margins and

o be a restructuring of community banks. Takin

onomics Journal

banking, Page 3

e time, must be

ies.the banking

banking system

f the banking

ence may bestem conducting

cy towards

ices at the

ans from outsidebanking and

securities and

of the

cy to dealment funds, and

vestments of

al and internal

hese is

ortant since its to abide by it

pital to total at-

end of 1999.

ll bring about anification and

hrough the

prices. This hasarry out their

lobal changes

e, large banksough service,

objectives,

and institutions

and the

ir impact on

risks related toes needed,

n of banking

eek for sectorshat may become

ct mix and

nt to customers,have effective

g into account


4/10

the rapid development of technol

focus on the promotion of bankimanage risks in lending operatio

emphasis on the importance of p

banks also need to work to devel

way as to fit with the developmetechnology. There needs to be i

modern services and products to

The impact of globalization an

Increased globalization a

dissemination of information an

increased growth in commercial

technologically more than their sadvantage of international excha

banks are found to be significantInformation technology (product development, delivery a

financial organizations to start o

across national boundaries allowand non-financial organizations.

combination of new IT, deregula

in the banking industry are brok

retail financial services (includinthe competitive forces in bankin

reduction in the profitability of b

income from lending activities abanking has led some to questio

profitability of traditional bankin

competition, poorly performing lA high cost base can be r

to diminish. Globalization and in

environment in which new entra

streams of banks. The increasingto the market has created opport

risk to the capital and money ma

automated links to their custometimely fashion without facing ca

risk takers can free up capital to

The ability to directly acmarkets and link electronically t

of selling branded financial prod

banks serving a large portion ofhave the potential to be develope

partnership with other institution



ogy, so management can approach the levels o

g services is the challenge for the future. Bankns to meet the rapid changes in positions of deb

olicies for the management of assets and liabilit

op human resources through rehabilitation and

ntal process and the requirements of modern baplementation of modern banking technology a

deliver those services to clients in the local mar

information technology on the banking ind

nd the integration of financial markets result in

advances in banking technology, you would e

banks. Furthermore, you would expect large ba

maller counterparts, since they are in a better pnges of new technologies and emerging innovat

ly more efficient than small banks.IT) creates new opportunities for banks in thed marketing. IT also allows other financial and

fering bank services. Deregulation both within

increased international competition between baBanking markets are also becoming more inter

tion and globalization ensure that the traditiona

n down. This can be easily seen in the internati

g banking) particularly across Europe and thehave led to a decline of traditional banking in

anks. The most striking evidence of this is the r

a percentage of total income. This decline in tthe long-term viability of retail banks. The dec

g is attributed to a number of factors including

oans and high cost bases.educed over time. However the level of compet

formation technology are creating a more unsta

ts and bank services are reducing the traditiona

unification of financial markets and the abilitynities for institutions to automatically pass spe

rkets at a minimal cost. The banks with the abil

rs can serve a global customer base of financialacity restraints. The institutions that are willin

invest in areas where they believe they have str

ess customers electronically reduces the barrierexisting institutions serving a market provides

ucts through established distribution channels.

local market need to determine which parts ofd into globally competitive businesses. By wor

s to reduce the elements that require investmen

onomics Journal

banking, Page 4

marketing, and

also need toors with

ies. Community

raining in such a

kingd introducing

ket.

stry

ore efficient

pect to find

ks to progress

sition to takeions. Large

ay they organizeeven non-

ountries and

nks, financialational. The

barriers to entry

nalization of

S. Increases inicated by a

duction in

aditionalrease in the

ncreased

tion is unlikely

ble banking

l income

to link directlyific elements of

ty to provide

institution in ato link together

ngth.

s into newthe opportunity

he community

the value chaining in

and focusing on


5/10

areas of strength, the community

provided to their current customservices. The banks that contin

the costs of each specific proces

control are in danger of being un

offered by institutions focused ocommunity bank fails to recogni

to be able to react in time to reco

Banking globalization and mo

The globalization of ban

transmission mechanism both do

banks who filed between 1980 a

markets with their overseas affililiquidity conditions. The existen

liquidity shocks caused by lendiactive lending channel, they impin strength as banking becomes

strength.

In the increasingly moreassets is accounted for by banks

how the process of banking glob

this is that banks with internatio

reallocating funds between the hthat banking organizations activ

banks can move liquid funds bet

If this holds true, the domestic lebut the effects of monetary polic

If global banks respond t

their foreign lending capabilityinternational transmission of do

U.S. banks in the top 5 percent o

policy. The association between

global banks are in the top 5 perbank expands its operations to i

unimportant for its lending. In t

monetary policy effectiveness. Llarge banks with domestic-only

policy.

This can be interpreted athe global nature of banks, since

their access to external financial

loan demand that is less dependecontracting monetary policy, int

vice versa with liquidity expansi



bank can continue to improve the capabilities a

r base and reduce the actual cost of the supporte to operate a vertically integrated structure foc

by merging with similar organizations or impr

able to respond to the improvement in the finan

specific global market segments (Holland). Ize a reduction in market share in a timely basis

up their position.

etary transmission

ing in the United States is influencing the mon

mestically and in foreign markets. The call rep

d 2006 show that globalized banks activate int

ates to insulate themselves partially from change of these internal capital markets directly cont

g to affiliated banks abroad. While these resultly that the lending channel within the United Store globalized and monetary transmission abr

globalized financial markets, the share of totalwith significant operations in foreign countries.

alization should affect monetary policy. An arg

al operations can respond to a domestic liquidi

ad office and its foreign affiliates. This argumly operate their own internal capital markets, a

een domestic and foreign operations on the ba

nding channel of monetary policy could becomy would not disappear.

the liquidity shock through an internal realloc

ay be affected. So banks going global may incestic monetary policy. Kashyap and Stein (200

f the asset distribution are virtually unaffected

bank globalization and bank size is certainly im

ent of the asset distribution. So, by this argumeclude foreign countries, monetary policy has a

is case, banking globalization is unlikely to ha

arge global banks are insulated from monetaryperations are found to be sensitive to changes i

an indication that insulation from monetary pootherwise large banks would not seem to be ful

markets. Consequently, global banks may have

nt on domestic economic and liquidity conditiornal funds flow from foreign operations to the

ons. It is possible that these internal flows are j

onomics Journal

banking, Page 5

nd services

ing of theseused on cutting

ved process

cial services

the existinghey are unlikely

tary

rts for all US

rnal capital

es in domesticributes to

imply a moretes is decliningad increased in

.S. bankingIt is not obvious

ment supporting

y shock by

ent presumesd that global

sis of their need.

less effective,

tion of funds,

ease the0) showed that

y U.S. monetary

portant. Most

nt, by the time aready become

e an impact on

olicy, whileU.S. monetary

licy derives fromly insulated by

a different type

s. In times of aead office and

st picking up


6/10

internal reallocations that chase

responding to changes in interestfunding needs. If internal capital

should be directly affected by do

have an independent effect on m

bank size. Access to alternativepolicy insulation. However, it ha

use of internal borrowing and leIt has been found that sm

insulated, but small banks affilia

monetary policy changes. At thelending channel within the Unite

lending channel of monetary pol

held by depository institutions.

faces a significant edge in the coacquiring other sources of funds.

economy and reduces the amounlending activity when banks areusing the Call Report Data of in

sensitivity to monetary condition

United States, but not for the larraise alternative sources of funds

If global banks are insula

there should not be any abnorma

between parent banks and their fWhen the internal capital market

policy shocks, it should be expe

outflows of funds from foreign ointernal capital market response

positive sum of the coefficients

countries that have U.S. bank afthe incentive of the U.S. parent b

might be reduced. The logic is th

internal capital markets in the ev

capitalized counterparts.When global banks opera

their foreign operations, the lend

domestic liquidity shocks. If anof the foreign offices should dep

tend to have less liquid assets, lo

Portfolios of global banks tend tindustrial loans play a larger role

consistent with lessons from Ber

with the bank business model. Lcustomers at a greater distance a

customers.



etter rates of returns of the global asset portfoli

rates, both domestically and abroad, instead ofmarkets are at work, the lending activity of the

mestic monetary policy. Overall, banking globa

onetary policy beyond any impact coming from

ources of external financing is certainly imports been shown that banks with global operations

ding between their head offices and their foreiall banks that are affiliated with large, global ba

ed with large, non-global banks exhibited sensi

same time, the increase in globalization suggesd States is declining in strength. The main argu

icy is that tight money should reduce the volum

he lending channel for monetary policy arises

st of acquiring insured, reservable deposits andA contractionary monetary policy drains reser

t of reservable deposits. This translates into a renable to replace each dollar of deposits with otividual U.S. banks, Kashyap and Stein showed

s was statistically more important for smaller b

er banks. Larger banks presumably have a greafrom external capital markets.

ted from domestic liquidity shifts just because

l activity in the functioning of their internal cap

oreign affiliates around times of changes in mois in operation and used to partial offset of do

ted to find an increase in the inflow of funds or

perations in times of tight domestic monetary pbetween the parent and foreign affiliates should

n the monetary policy indicators. If monetary c

iliates move in correspondence with U.S. moneank is to reallocate funds between parents and

at banks with weaker capital positions might re

ent of a liquidity shock when compared with th

te an active internal capital market between the

ing activity of the foreign affiliates should be a

ctive internal capital market is in operation, thend on the liquidity of the domestic head office.

wer capitalization, and higher nonperforming lo

be similar in terms of loan to asset ratios, butin the business base. The portfolios of large ba

ger (2005), where it is argued that the bank size

rger banks tend to lend at a greater distance, ind less exclusive and short lived relationships

onomics Journal

banking, Page 6

o and

for internalforeign offices

lization seems to

the increase in

nt to monetarymake significant

n offices.nks are indeed

tivity to

s that theent behind the

of reserves

ecause a bank

he cost ofes from the

duction in bankher funds. Whenthat loan

nks in the

ter ability to

f their size,

ital markets

etary policy.estic monetary

a decline in

licy. Thisbe reflected in a

onditions in

ary conditions,oreign affiliates

y more on

ir well-

r domestic and

fected by

lending activityGlobal banks

an shares.

ommercial andnks are

is correlated

eract with theirith their


7/10

In recent years, the flows

from parents to affiliates. Whilefaster, so foreign loans are decli

affiliates to parents show that af

U.S. markets. Interestingly, larg

coefficients suggests that the Ecthe large, non-global banks may

Cetorelli (2008). This can be exthat, because of their size, are ab

global banks, not including the l

global banks display a degree tocan be found to be wholly insula

Global banks can operate

between domestic and foreign o

advantage of a higher fed fundsforeign operations of this bank

the case, foreign offices would sibalance sheet through purchasesthem. Foreign affiliates help ins

not mean that the consequences

globalization. While some insulamonetary shocks can be magnifi

typically much smaller than the t

lending of foreign offices would

lending.A banking system that gr

self-adjustment in times of liqui

shocks and the bank may have isfor viewing foreign markets as a

rely on the presumption that the

U.S. federal funds rate (Cetorelcountries where currencies are n

buffer role. The implications of t

differ depending on whether thei

monetary policies to those of the

Financial Globalization

The financial globalizati

surge in capital flows among ind

countries. Although these capitaldeveloping countries, a number

collapses in growth rates and sig

macroeconomic and social costs.integration on developing econo

empirical evidence. It is true that



from affiliates to parents have substantially ex

total foreign lending has been rising, domestic ling as a share of total bank lending. The flows

iliated foreign banks have assets that tend to be

, but domestic-only banks seem less insulated.

nomic magnitude of the effect of monetary polnot be very large as referred by the coefficients

ected these referred to be Cetorelli (2008) are sle to access external financial markets. This sho

rgest, are insulated from monetary policy, whil

lending sensitivity. Only non-global banks in thed.

an internal capital market that allows them to

erations depending on their liquidity needs. So

ate that may signify a higher return in the Uniteay reallocate their resources accordingly. How

mply increase their position in their domestic aof government securities or any other means thlate global banks against domestic liquidity sho

f monetary policy are smaller than in the absen

tion occurs in U.S. domestic markets, the transd on foreign markets. Since foreign lending po

otal domestic loan portfolios, the impact of an

be much larger than the impact of an inflow on

ows increasingly more global may have enhanc

ity crisis. However, it may not rule out broader

olated intervention by national policy authoritieliquidity buffer against U.S.-generated liquidit

ost of capital in foreign markets does not mov

li pg. 24-25). It may be those branches and subst pegged to the dollar are going to play the do

he globalization consequences for the lending c

r partners in banking contain countries that dire

United States.

n that has occurred since the mid-1980s can be

ustrial countries and between industrial and dev

inflows have been associated with high growthf these developing countries have also experie

nificant financial crises that have had substantia

As a result, a debate has emerged on the effecties. But much of this debate has been based o

many of these developing economies, with a hi

onomics Journal

banking, Page 7

eeded flows

ending is risingrom foreign

directed towards

he size of the

cy on lending ofshown in

ill institutionsws that large

e large, non-

e top 1 percent

ove resources

bank might take

d States. Thever, if this was

sets on thet is available tocks, this does

ce of

ission of U.S.tfolios are

utflow on the

domestic

d resilience and

international

s. The potentialshocks may

in step with the

idiaries ininant liquidity

hannel could

tly tie their

seen by the

eloping

rates in someced periodic

l

of financially on limited

gh degree of


8/10

financial integration, have also e

emerge from the analysis aboutthe risks of globalization. The q

A large amount of eviden

important impact on a country's

vulnerability to crises. Althoughevidence of the benefits of a rob

and good corporate governance.institutions in place before capit

itself can help a country import

institutions (International MoneFinancial globalization a

globalization is a concept that re

border financial flows. Financial

markets. The volume of cross-boThere has not only been a much

surge of inflows from industrialare substantially more volatile thAlthough accurate classi

suggests the composition of capi

financial crises. The average peeconomies grow at a more favor

globalization can help developin

The volatility of consumption rel

integration increases. The essencshift some of its income risk to

declined in the 1990s, the volatil

market economies in the 1990sglobalization.

Financial globalization d

crises, but sudden stops from othhigher costs. The cost extends o

return reduces long-term growth.

problems associated with the inf

share information with each otheinformation which they feel they

monitor the compliance with the

finance at terms they deem to beemerging markets which do not

finance. In the absence of well-d

for credit. Foreign capital may pbeen shown to be tied to domesti

Bank crises have severe

of savings to those sectors depencredit or face high borrowing co

In some of the most serious case



xperienced higher growth rates. Some general p

ow these countries can increase the benefits froality of domestic institutions appears to play a

ce suggests that the quality of the domestic inst

bility to attract new foreign direct investment a

there are different measures of institutional quast legal and supervisory framework, low levels

There is an unresolved tension between havinl market liberalization and the notion that such

est practices and provide an impetus to improv

tary Fund 2003).d financial integration are different concepts. F

ers to the increased global linkages created thr

integration refers to a country's linkage to inter

rder capital flows has risen substantially in thegreater volume of flows among industrial count

o developing countries. Bank borrowing and fian foreign direct investment.ication of capital flows is not easy, there is evid

tal flows can have an influence on a country's v

capita income for the more financially open anble rate than that of less financially open econo

g countries better manage output and consumpti

ative to output should decrease as the degree o

e of global financial diversification is that a coorld markets. Although the volatility of output

ity of consumption growth has increased for the

hich was the period of the rapid increase in fin

es not seem to be directly associated with the c

er countries in the region within the banking crier time as investment declines during a bankin

Banks are well-suited as intermediaries to deal

rmation in the financial sector. Since banks do

r, they have incentive to spend resources on obtcan use in making loans or setting rates. Banks

conditions of a loan agreement. This allows fir

reasonable. These bank activities are particularave well-established financial markets or other

veloped securities markets, companies rely on

ovide an alternative to the supply of funds, butc savings.

onsequences in emerging markets, since they i

dent on the banks. Companies which cannot obts may fail and the economic activity in the are

s, such as Mexico in 1994-95, East Asia in 199

onomics Journal

banking, Page 8

rinciples can

m and controlole in this.

itution has an

nd their

lity, there isof corruption

goodliberalization in

domestic

inancial

ugh cross-

national capital

ast decades.ries but also a

ancial portfolios

ence that

lnerability to

d developingmies. Financial

on volatility.

financial

ntry is able togrowth has

emerging

ncial

osts of the

ses are linked tocrisis, which in

with the

not need to

ainingcan also

s to obtain

y important insources of

domestic banks

investment has

terrupt the flow

ain short-termwould decline.

-98 and


9/10

Argentina in 2001, the banking c

situation to worsen and result inreverse and may never be fully

sign of a lending boom which

Domestic savers have the

an incentive to monitor the activwhich could cause the depositor

diversity risk.Emerging market countri

order to prevent a boom and bu

safeguard the country from the ocountry needs to be careful as to

an increased likelihood of a crisi

Conclusion

To accomplish total globease the entry of foreign banks ithrough increased competition.

exaggerate this situation. Domes

usually borrow in a foreign currereassurance about the value of th

on domestic financial fragility is

of banking crises and shortens it

To face international cothe market needs, but ensure that

also know the nature of their co

through increasing capital and min order to achieve the required r

through rehabilitation and traini

requirements of modern bankingtechnology and introduce moder

People and technological system

more than internationalization a



rises is accompanied by a currency crises whic

two crises. The resulting economic conditionade up. A rise in the domestic credit to the priv

may precede a crisis.

ability to withdraw their funds from the bank.

ties of local banks and causes the banks to avoito pull out. Moreover, both savers and lenders

es which seek to avoid a crisis need to regulate

st cycle. The closing of the countrys capital a

ccurrence of a banking crisis, in fact the opposiwhich type of financial liability it uses. Debt is

s.

lization, a common currency must be establishto domestic markets that can contribute to morn the other hand, a currency crisis in an emergi

tic borrowers, including banks, that obtain fund

ncy such as the dollar to give foreign investorseir investments. The effect of financial globaliz

not simple. Foreign direct investment both low

duration.

petition, commercial banks must work to knowthey do not conflict with the goals of their ban

petition. Banks need to reinforce their financia

erging with small and weak banks to form moreduction in costs. Banks need to develop huma

g in such a way as to fit with the developmenta

technology. They need to implement the modeservices and products to the customers in the l

s are becoming increasingly interdependent. It i

d universalization.

onomics Journal

banking, Page 9

could cause the

ay take years toate sector is a

his gives them

risky lendingare able to

heir banks in

count will not

e holds true. Aassociated with

d which willefficiencyng market would

from abroad,

someation, therefore,

rs the incidence

all details about. They must

l resources

effective unitsresources

l process and the

n bankingocal market.

s something


10/10

REFERENCES

Berger, Allen, Nathan H. Miller,

Follow Organizational F

Banks, Journal of Finan

False Dawn: the DelusioHicks, Raymond. "Globalization

Contents @ the Informal.

F -- International Monetary Fund Home Page.Shang-Jin Wei, and M. Ayan Kose. 9 Sept. 200

rg/external/pubs/nft/op/220/index.htm>.al Globalization and Banking Crises in EmergiGlobalization and Banking Crisis in Emerging

2008. Web. 10 Sept. 2010.

ol3/papers.cfm?abstract_id=1339948>.1995."The Impact of Monetary Policy on Ban

ster Conference Series on Public Policy, 1995,

ization and Its Effects on the Banking SystemIts Effects on the Banking System Performanc

J. and Rezvanian, Rasoul, The Effect of Globaological Progress and the Productivity Growth

r 12, 2007). North American Journal of Financ

007. Available at SSRN: http://ssrn.com/abstract of globalization on monetary policy," Procee

City, pages 265-305.

2) 'Globalization' the encyclopedia of informal

balization.htm.ank of New York. Going to Search. By Nicola

2008. Web. 10 Oct. 2010.

ol3/papers.cfm?abstract_id=1162253>.: The Concept, Causes, and Consequences." Gl

nsequences. The World Bank, 15 Dec. 1998. W

m/publications/papers/paper.cfm?ResearchID=

onomics Journal

banking, Page 10

es Function

rge and Small

. Gray, John.

rint. Pg. 62planation."

pt. 2010.

obalization and

Industry." The3 (1997).

y Eswar S.3. Web. 10 Sept.

g Markets byarkets (2008).

Balance

ol.42, pp.151-

erformance ine in Egypt 1st

lization onof U.S. Small

and Banking

ct=1536643dings, Federal

ducation,

etorelli and

obalization: The

b. 10 Sept.

30>.

global i say tion

Documents