OVERVIEW OF THE CHANGES OF BANK REGULATIONS

Overview of the Changes of Bank Regulations



Overview of the Changes of Bank Regulations

Overview of the Changes of Bank Regulations

International banking has gone through alternate treasures in the last 150 years. It was very common at the end of the nineteenth century, when foreign banks were deeply involved in financing large investment abroad, in particular toward colonies; it declined during the interwar period, only to reemerge in the 1970s, following financial innovation and the rapid increase in international trade. In recent years, international banking activities have reached a historical peak, thanks also to an increase in cross-border mergers. (Pozzolo, 2005)

Economic integration, institutional characteristics, and profit opportunities are indeed the driving forces of bank internationalization, but their effect may be different depending on the expansionary policy followed by the bank. For this reason, in our empirical analysis, we distinguish between foreign branches and foreign subsidiaries. Our sample includes 260 large banks from Organization for Economic Cooperation and Development (OECD) countries and all their foreign branches and subsidiaries in each of the other OECD countries. By comparing within a unified framework the determinants of alternative expansionary policies, we are able to gather further insight into the prospects of international banking.

Recent years have glimpsed a drastic decrease in global barriers to affray in the financial services industry. Deregulation round the world has allowed consolidation over more distant and more distinct types of financial institutions. Improvements in information processing, telecommunications, and economic technologies have facilitated larger geographic reach by permitting institutions to organize bigger information flows from more positions and to assess and organize risks at smaller cost without geographic proximity to the customer. Moreover, development in cross-border undertakings of non-financial businesses has spurred greater claims for organizations that can supply economic services across boundaries.

Despite these forces, the economic services commerce in general, and the financial banking commerce in specific, currently stay far from globalized. While there has been considerable bank consolidation inside one-by-one industrialized countries in recent years, traverse border bank amalgamations and acquisitions (Berger, 2007) amidst these countries have generally been much less frequent. In most other nations as well, market shares of foreign-owned banks are generally below 10% (Berger and Qinglei 2003).

We argue here that the banking commerce may not ever become completely globalized, even after modifying to the full effects of deregulation, technological advancement, and bigger cross-border non-financial activity. Some banking services - such as relationship lending to informationally opaque small businesses - may always be provided primarily by small, local institutions operating in the nation in which the services are demanded. Other services, such as syndicated borrowings to large borrowers, are more expected to be supplied by large, international institutions for which the home nations of these institutions are of much less consequence to the demanders of the services. In our view, the better inquiry is not when or if the banking commerce will be globalized, but rather the extent to which it will be ...