International Banking (Essay Sample)

International Banking
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International Banking
International banking involves aspects in terms of services and operations involving the facilitation of international trade, loans, and grants to governments and other private institutions, and the manner in which money flows both for investments and for making payments. The United States banks involvement in international banking remains limited to the large banks in which the volume of the markets is concentrated. However, despite the late entry into international banking for American banks, which made entry late, though the banks’ participation in international banking has witnessed a significant growth over period with volumes going well beyond the elementary levels in offering of services both to the domestic firms and to individuals in equal measure. Based on such a perspective, it is an aspect of substantive importance that indeed international banking remains a core issue of the global economy. This paper, therefore, discusses the various aspects pertaining to international banking, in terms of initiatives including Volcker rule, Vickers proposal, and Liikanen. 
International banking is indeed a different kind of banking and, therefore, requires appropriate structures and operative mechanisms for the realization of success in the industry. Following the current financial crisis, different economies are working on instituting various banking regulations in the international perspective, in the form of different initiatives, all aimed towards the establishment of stable international banking relations (Gambacorta and Rixtel, 2013, 19). As such, legislation on the European Union’s banking structural reform is currently being determined, from which European Union banks are required to have a distinction between investment businesses from the retail businesses. However, in the case of United States banks, a different perspective is visible, especially on the separation aspect of investment business and the retail businesses. In the United States, the distance aspect is not a requirement for United States banks; however, for the other banks of non-American origin operating in U.S., would require that the banks have operations under a single U.S. holding company (Gambacorta and Rixtel, 2013, 14). For the achievement of such an aspect, a number of modifications would be necessary, especially for the EU banks with affiliated US businesses. In order to achieve such a perspective, a number of aspects have appeared including the Volcker rule, Vickers proposal, Liikanen, as well as other recent European initiatives.
The primary reason for the development of the different initiatives is to establish an insulation of various financial aspects of substantive importance to the economy. Equally, the efforts seek to offer protection to consumers from risky, though less important activities. Despite the various negatives associated with the separation aspect, it remains an aspect of substantive relevant on the benefits related to the separation. Such include, preventing the subsidies supporting protecting aspect from lowering risk-taking costs as a means of encouraging moral hazards in business, reduction in the scope of interest conflicts through preventing aggressive risk culture from getting infected by the traditional banking businesses (Gambacorta and Rixtel, 2013, 22). Others include the offering of protection to various institutions from participating in activities of losses emanating from sources other than those of the government operations as well as the reduction in complexity of the banking institutions as a means of enhancing management and strengthening of the market discipline .
In order to achieve the above aspects, it is clear that the initiatives have to come in handy. For Volcker rule, despite being narrow, has very strict regulations. The law operates in such a way that it opens up for market-making activities while limiting proprietary trading. Volcker rule works to offer protection from investments in entities that expose the investing institutions to significant danger including private equity funds (Gambacorta and Rixtel, 2013, 18). Currently, the United States legislation limits activities of depository institutions, therefore, works in unison with Volcker rule on the restrictions on banking institutions. Volcker rule is indeed a strict piece of legislation as it exempts the transaction of certain financial instruments including agency securities while at the same time limiting various activities with other subsidiaries within the same group.
In the case of Vickers proposals, a different perspective is evident from that of the rule. Ideally, Vickers proposals are broader in terms of their operative mechanisms, which include the exception of a wider array of business involved in banking from the protected entity including the elements such as the purchase of various financial instruments as well as loan purchases for secondary markets. In comparison to the Volcker rule, it emanates that Volcker proposals appear stricter as restrictions extend to intragroup and inter-firms available (G...