International Banking

1. Introduction

Banking systems all over the world have undergone a huge change over the last few decades and the implications of international banking have also been tremendous on the global financial systems.

The regulation and management of the various functional units of international banks have largely been a private-sector endeavor. Banking and financial firms engaged in cross-border trade and business endeavors have certain primary functions that they undertake irrespective of the nature of the economic system they operate within. Apart from this, the distinctions and corresponding advantages and disadvantages of the variety of capitalistic economies prevalent across the world like the Rhenish model and the Anglo-American or Anglo-Saxon model have been discussed at length. The understanding of the fundamentals of such models and the impact that they have on the existing banking systems across the world is the key to comprehending the global financial system at large.

2. Part A

2.1.Financial Market and Role of Banks

Financial markets can be comprehended under both global as well as within national domains. The financial system consists of majorly two parts namely the capital market and the money market. The difference between the two lies in the securities and instruments that are used and the average maturity period in both cases. In the case of the capital market, they serve as the system within which the various business and trading entities can make use of the funds that are raised for long-term investments and thus the gains that are made by the underlying economic activities that are undertaken by the various business entities and other profit-making entities that are a part of the economy. The other part of the financial system i.e. the money market is usually considered for the fulfillment of short-term liquidity requirement that is reliant on the ready availability of monetary resources. The securities and instruments used in both of them differ hugely from each other.

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To begin with, international banking has been a critical segment of a more extensive procedure of financial globalization, and speaking of the key functions that are performed by them affect the business of various international firms (Avdjiev, McGuire & Wooldridge, 2015). The domestic or local operations of international banking entities are responsible for the growth and development of emerging and developing markets all over the world due to the effective distribution of financial and capital resources. fue by enhanced participation of the economies in the activities of the various international banks even the local banking entities could accelerate their international activity while being headquartered locally (Avdjiev, McGuire & Wooldridge, 2015). This can result in a prominent cross-border financial consolidation and unification of different economies.

As far as the statement given by the CEO of Deutsche Borse Bank is concerned that says that, strictly regulated markets are fundamentally superior to the Anglo-American capitalism model of deregulation, is very relevant in the modern-day conception of the various capitalistic models prevalent today. To gain an insight into each of these models, understanding the fundamentals alongside the advantages and disadvantages of each of these models and comparing and contrasting the same to arrive at a well-analyzed critique involving both the models in the existing financial systems.

2.2.Comparison of the Rhine model and Anglo-Saxon model

The rhine capitalism model of the economy is one concern of the global financial system that comes under the purview of the international banking sector as it has a lasting impact on the fundamental nature and approach of the institution itself. The banking systems that are prevalent all over the world have been significantly different from each other in more than one way as the guiding principles and objectives have been substantially different from each other. To adjudge the overall impact of the banking system on the financial markets, it is important to understand the role and function of the financial markets themselves.

As per the model, the Anglo-Saxon or Anglo-American model of capitalism is more driven by the demand-supply dynamics as compared to the Rhenish model of capitalism. One of the aspects of the Anglo-Saxon system that starkly differs from that of Rhine capitalism is the fact that the former is way less regulated as compared to the latter (Schoenmaker, 2013). It can be said that the Anglo-Saxon model has more room to be driven by what is socially more relevant and what kind of projects and business endeavors should be funded by the capital markets is under greater control in case of the Anglo-Saxon model as compared to the Rhine model.

Anglo-Saxon model is driven by the Smithian economics whereas the Rhine model significantly drifts from the same and brings in the idea of welfare and socialism within its purview. Hence it can be said that the case Rhenish model is built upon the fundamental concepts of inclusiveness and co-decision principles as opposed to the Anglo-Saxon model where the decisions are taken with keeping the market in the purview of making profits and the welfare part of the same.

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Effectively speaking the Anglo-Saxon model uses the free market dynamics more as compared to the Rhine model in which the stakeholders are closers to the funding and other decision-making aspects. The Rhine model can be observed in much of the European continent except the British Isles where the US, UK, etc become the prime subscribers to the model. With the fast development of global financial systems, the discussion is of international banks. Presently, the banking area possesses an urgent position in the worldwide economy, as it has admittance to the capital, innovative abilities, and the global system to encourage these exercises. Banks screen the business division through the assessment, evaluating, and credit-conceding capacities. In this specific situation, the operations of a global exchange of administrations, that have as an outcome either the creation or administration of budgetary means, the vehicle of capital from surplus units of the nation in another, or the intercession in the casing of national lender framework are called international banking activity. At the point when studies allude to the internationalization of banks, they are worried about two distinct parts of internationalization. The primary viewpoint alludes to the trade as far as import and fare of managing account administrations and exchanges in outside money. The second perspective, notwithstanding, is identified with the procedure of banks when internationalizing inferred that the departure of a similar favorable position by business banks as suppliers of credit to extensive borrowers, rivalry from non-bank budgetary firms, and expanded rivalry from remote banks have made the impulse for the reception of all-inclusive banking (Schoenmaker, 2013). One of the basic tenets that have been established concerning the various reasons for which international banking activities have found commonplace today is to enhance and implement the redistribution of financial fluidity at a global scale and at the same time ensure adequate redistribution of capital between various nations. Globalization is the widespread pattern in financial markets and the point of convergence in the twenty-first century. The fundamental benefit of the internationalization of managing an account work is the expansion of the overflow of customers (Kerl & Koch, 2015). For the saving money benefits, the excess of purchase is expanded when the financing cost of support is diminished, while the loan fee of stores increments. All the more particularly, for a solid rivalry, the benefit being referred to is amplified, after it expands the loan costs of stores by diminishing the financing costs of supporting and the cost of provisions. A moment that benefits from the internationalization of banking activities is that universal banking augmentation expands the viability of global capital by enhancing their stream. This implies the viability of the conveyance of capital acquired by financial contract loan specialists and borrowers from various nations. Another benefit from the internationalization of lender markets is the expanding level of merging of financing costs of the residential market with those that exist in the Euromarkets (Kerl & Koch, 2015). In the meantime, the internationalization of agent markets prompts the debilitating of the marvel of the expulsion of private interest in general society division, as in a domain of free market of capital, the avoidance of the private ventures from the state is adjusted, moderately effectively, with the outsider sparing capital (Schoenmaker, 2013). The cost from the internationalization of managing account exercises is found in the loss of wages for the nations, as the internationalization of work prompts the escape of money to nations where the submitted stores have higher premiums or still, the national bank of that nation keeps the littler mandatory rate of capital from the business banks.

With the destruction of the communist economic framework in Eastern Europe, the contrasts between variations of free enterprise turned out to be all the more plainly conspicuous. While not impeccably contradictory, the two fundamental models of private enterprise have particular geopolitical-verifiable establishments that make them as various as land and ocean. Plaguing the organizations and strategies for each type of private enterprise, from the hard-cash administration of German focal saving money to the ascendance of the advertising for corporate financing in Anglo-Saxon industrialism, the waiting impacts and impact of an earthly perspective compared to a sea perspective is clear. The EMU endeavors to fuse both types of free enterprise, but since of their natural premise, the assignment is outlandish. The joining of Bundesbank and ECB needs demonstrates that the land-based, German model is the prevalent frame in the EU (Marchetti, 2016).

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3. Part B

3.1.Income Opportunities for international banks

The rise of globalization and the interdependence of the various national economy and financial markets have led to the popularity of international banks. International banks can be critically attributed to having a highly complex structure and a plethora of complicated financial functions within their paradigm today as compared to the previous years (Buch & Goldberg, 2016). One of the key opportunities available to the various international banks in terms of generating sustainable sources of income stems from the developing and emerging economies of the Asia-Pacific regions. In the past few years, the APEC has witnessed a rejuvenated growth when it comes to the interest of investors from the developed economy (Buch & Goldberg, 2015). Due to the lower cost of the various factors of production in addition to the changing, more liberalized socio-economic state of the nations, the investors from the West and the traditionally high-income countries attribute a lot of the investor interest in the emerging economies.

3.2.Potential Impact of the regulatory reforms on the incomes Opportunities for international banks

Some of the aspects of the existing financial systems of the various countries such as the capital market investments and other financial derivative instruments that are used by different parties for the value enhancement and the securitization of the assets that they hold form the major portion of the income opportunities for the international banking systems. Funding of projects and business endeavors that are high on the social and economic implication

One of the major concerns of most of the banking systems that are a part of the European economy is the diminishing nature of the incomes that are generated by the various international banks and other similar financial institutions all over the world (Berrospide, et al., 2016). To secure global financial and capital market conditions, various reforms have been suggested and implemented from time to time. Also, there have been instances of a financial crisis from time to time that has led to the adoption of various regulatory measures at different levels of banking practices and processes. Some of the impacts and outcomes of the regulatory reforms, specifically on the incomes generated by the above-mentioned opportunities, have been explained below:

The new regulations would be focused on the improvement of the general solvency of the currently existing banking system. The general take is that different regulations would often have contradicting outcomes in different business conditions and would also depend on the business model that is being followed by the bank. For instance, banks that have more severe prudential risk-weighted asset treatment are likely to suffer from the negative impact of the regulatory policy changes (Frost, de Haan & van Horen, 2016).
The increase in the operational costs, as well as the first cost required for the effective implementation of the various regulation changes, would impact the income source of the bank as it would put more pressure on the expenses that are borne by the bank.
In the context of emerging economies where the interest generated from low-risk, low-margin but high-volume lending is one of the key channels of income for the banking entities, the change in the regulatory framework can further distress the size of the lending that is undertaken by the bank due to more complicated structure to channelize the lending and borrowing activities in the economy (Frost, de Haan & van Horen, 2016).
Short-term wholesale funding forms a vital part of the capital; the market in most emerging markets would surely be impacted as a result of the change in the regulations regarding the structure and operations of the international banking entity (Buch & Goldberg, 2015).
This can be detrimental to the desirability of easily avail liquid assets at the disposal of the various business and trading entities that are involved in high paying but high-risk In the long run, this can bring down the efficacy of the emerging markets (Haslem, et al., 2015).
One of the positive impacts that the enhanced level of regulation would have on the system involving the various international banking entities is the improvement in the transparency that would be maintained through every stage of the different capital markets or general banking processes undertaken (Ichiue & Lambert, 2016). Although, this would put temporary pressure on the bank’s earnings through various channels.
The various frameworks related to or the structural changes that have been dictated by the regulatory norms could increase the overhead and operational cost of international banking and other allied activities (Berrospide, et al., 2016)
. Hence the cost of funding for various projects and other economic activities would witness an uptrend.
Regulatory requirements such as those set by Basel III were built further upon the capital requirements set earlier and hence have been made into stricter norms. The capital requirements under the Basel III norms have been improved for specific exposures that include complex securitizations, market risks, and some kinds of credit risks. Quite incidentally, all these serve as major sources of loss in the event of any financial crisis.
The liquidity rules under the regulatory norms have also been reformed which intends to improve the bank’s liquidity risk profiles but that the same time it would have a lasting impact on the overall efficacy of the banking and other economic activities in a country. A lot would be dependent upon the nature of the economy and the extent to which the market requires ready capital funding options. This would also affect the pre-existing banking activities in most of the economies that follow an Anglo-Saxon form of capitalistic economy.
The positive impacts that the regulatory framework would have on the income of the banks as well as the overall quality of the banking functions undertaken by the same would be a stark difference from what it was previously. As a result of regulatory frameworks such as the Basel III norms, the banks have become more robust about holding the quality of capital that is at their disposal. This is also reflected in the liquid assets which have increased and at the same time the leverage levels have decreased.
As a result of the above, the banks have become more resilient i.e. their capability to deal with any financial crisis has improved. Hence even if cases of low growth and low-interest rate pressuring the low net income for the banks arises, the banks are better equipped than before.

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4. Conclusion

In conclusion, it can be said that the above essay has attempted to bring forth the various aspects of international banking systems all over the world. The regulatory norms that have been frequent in the existing global financial system, have been analyzed for their impact on the sources of income for the bank in the present-day context. Apart from this, a comparison between the various capitalistic economies that are prevalent in the world today has been made thus enlisting their advantages and disadvantages and how they can be better handled by the respective systems for the effective use of the resources and the capital.