Globalising International Banking (Research Paper Sample)

Globalizing International Banking
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Executive Summary
There is obvious antagonism when a bank is faced with a choice to make a decision on whether to adopt either global or international model. The contention comes from the unpredictability of capital flows which often directs the banking operations. Many banks, therefore, are neither international nor global: They are typically hybrids of either (McCauley et al., 2015). However, more banks have adopted global models except Europe due to its business model. The Argentine crisis is an affirmation that transfer risk diminished by global banking can be disintegrated by specific kinds of country risks.
The 1997 crisis in East Asia had a stabilizing effect on the global economy through a generation of capital outflow. Eventually, the position of East Asia was reinforced through the already strong US economy (McCauley et al., 2015). It also gained from the transfer of its risky assets to low-risk resources. However, the East Asia's Global Intermediation strategy through the US may debilitate their financial position if the US economy keeps weakening.
Introduction
Globally, many banks decide to adopt either a global or international model as dictated by capital flows. This report addresses the major differences between global banking and international banking. The paper also discusses the implications of adopting any of the banking systems. It also addresses the typical trends, except of the European banking regarding global banking. The paper also gives some insights into the Argentine crisis with the special emphasis on global banks’ exposure to systemic risks.
Global Banking versus International Banking
The Principal Difference
Global bank and international bank differs from each other in the way they operate outside their country of residence. A global bank finances foreign claims on borrowers in foreign markets through funds raised in the same foreign markets (McCauley et al., 2015). The bank along these lines primarily serves local markets through local deposits yet it is multi-national or global in nature because it works in different countries (McCauley et al., 2012). Examples of global banks are Scotia Bank and Royal Bank of Trinidad and Tobago, both having origins in Canada. On the other hand, international banks grant loans to foreign countries made available through local clients’ deposits (McCauley et al., 2015). There are few international banks overall. An example of an international bank is the Caribbean Development Bank, which helps Caribbean countries in financing social and economic projects. Typically, banks are neither simply global nor purely international but combine both while keeping the focus on one of the models as a goal. Technological innovation has altered markets and operations subsequently compelling a couple banks to adopt a more stabilized hybrid model yet most banks embrace a global model (Bruno and Song, 2015, p17).
Ways In Which A Bank Headquartered In One Country Can Fund Loans To A Borrower In Another Country. For Instance, U.S.A Financing Japan
Most banks would still be able to offer loans or conduct business in an alien country irrespective of the banking model that the bank opts to adopt (Bruno and Song, 2015, p45). For instance if a bank headquartered in the USA needs to reserve credits to a borrower in Japan there are a few methods of operation it can embrace which will reflect its type, whether international or multinational/global (McCauley et al., 2012). There are five possible ways for the bank to achieve this:
* If a Japanese financial institution that is associated with a bank in the USA gets funding from Japanese depositors and thus loans it to local borrowers, this kind of banking can be termed as global (McCauley et al., 2015).
* If American depositors make deposit specifically to a Japanese bank that is a subsidiary of a bank in the USA, and these funds are utilized to provide loans to local Japanese. This can be considered as global banking (McCauley et al., 2015).
* If the bank in the USA gets deposits from local depositors and issues loans straightforwardly to organizations/institutions in Japan, this would be regarded as international banking (McCauley et al., 2015).
* If the bank in the USA through a member bank in Japan makes financing accessible to Japanese borrowers, this is international banking given that the deposits are in the USA (McCauley et al., 2015).
* If Japanese depositors are clients of a bank in the USA and the bank gives credits to borrowers in Japan; this will be a type of international banking (McCauley et al., 2015).
Assets Ratio: Locally Financed Foreign Assets to Total Foreign Assets
An unmistakable sign as whether a bank ought to be considered as global or international is by means of its assets ratio, which is the ratio of locally financed foreign assets i.e.(Loans to Japanese borrowers) to its aggregate foreign assets i.e.(the assets that country possesses abroad). For a global bank, the value will be one (1) and an international bank the value will be equivalent to zero (0) (McCauley et al., 2015).
Since it is improbable for a global bank to have an asset ratio value of one (1) meaning that all locally financed foreign assets are equivalent to aggregate foreign assets. It is also improbable for an international bank to have an asset ratio value equal to zero (0) significance: that there are no locally financed foreign assets, in that every foreign asset or loans would be financed by the home country. We can securely deduce that all banks dwell between global and international and may sway to either extreme.
Transition from International Banking to Global Banking
There has been a development far from international banks towards global banking since the 1980s. There are various reasons for the behind the movement toward global banking.
* During the 1980s financial crisis and resulting currency crisis, banks utilized the global banking model as a risk mitigation technique. Since there were restrictions forced on abroad loans and deficiencies in foreign trade they would need to lead deposit and loan operations by local standards i.e. (global banking) to relieve the risks that originated from the crisis. This strategy, however, turned out to be dated in the 2008 financial crisis where national banks needed to set up makeshift swap lines with the US Treasury to meet foreign transfer demands (McCauley et al., 2015).
* The US Federal Reserve obliged banks outside of the US to keep up a base money reserve; banks sidestepped this by keeping loans offshore and worked as international banks. In time, this prerequisite got to be insufficient as a result of the banker's thriftiness and foreign banks had the capacity uninhibitedly get deposits and issue credits by local standards consequently working as global banks.
* The quest for new markets is implied that global purchasers would be making deposits and utilizing credit facilities in different countries. This has permitted banks more prominent opportunity to work utilizing a global model as a part of which deposit and loan transfers are executed straightforwardly between the client and the local associate.
* A globalized business environment has permitted large corporations to put resources into bonds and different investments encouraged by local banks or affiliates. This has lessened abroad credits massively and has tilted banking operations from exceedingly international to a global model.
* Financial markets and frameworks have been blooming and orchestrating in the midst of failing state banks, mergers, and acquisitions. The expansion of ICT has made a consistent move from customary various hierarchical models to network or globalized models. Clients oblige productive services independent of their location therefore requesting a global banking model.
The European Exception
Although most banking seems to be moving towards a global banking model, Europe has kept up an international banking model. Lately there is more noteworthy advocacy for keeping up the international model due to its value amid the 2008 crisis where European banks drove the swap lines set up by the US Treasury, demonstrating the estimation of cross-border transfers (McCauley et al., 2012). There are some various variables that back Europe's case of international banking pattern. For example;
* The coming of the Euro have given normal currency market facilities and automated real-time components. Global transfers can be promptly encouraged, making borders a non-barrier to quality service.
* The quantity of noticeable/prominent European banks per capita is meager compared to other countries such as USA, China, Brazil, and so on, bringing about maintained cross-border loans and deposits.
* Prominent financial services can house in major European urban communities, and they can promptly collaborate and service customers’ cross-border.
There is currently no evidence of a return to international banking from global banking, with the exception of the European banking which prefers international banking due to its business model. As already mentioned most banks assume a hybrid of both international and global banking and enjoys the benefits of both sides, with an inclination towards a forecasted end model (Bruno and Song, 2015, p33). This is possibly due to the central head offices that are established in Europe, in nations like London, Zurich, and Luxemburg, and thus they favor more cross-border activities. These activities are also strongly related to Europe money market (McCauley et al., 2015). The goal is to have cross-border funds to strengthen the status of Euro currency and also to improve local claims in Europe. Also, many large business groups tend to have protections and loans in other...