Global Banking Industry Tendency

 


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Global banking involves similar operations as local banks do. However, global banking usually deals with money and foreign exchange; whereas local banks concentrate on lending, asset management and consulting services.

There are numerous ways in which you could segment the banking industry. One of the ways could be the sector in which the bank operates. For example, you could have agricultural banks (Credit Agricole) or employees bank (any credit union). You could also do the segmentation by fields of activities. Such as commercial banks (Citibank) or investment banks (Goldman Sachs). Commercial banking covers services such as cash management (money transfers, payroll services), credit services, deposit services and foreign exchange. Whereas, investment banking is in charge of services like asset securitization, coverage of mergers and acquisitions, securities underwriting, etc. However, because of the deregulation of the financial sector, some of the commercial and investment banking institutions are competing directly in money market operations, private placements, bonds underwriting, etc. It is, however, believed that all these segments are secondary to the geographical segmentation of the global banking industry.

When defining the geographical segmentation it is probably best to start with the main financial markets on the globe and its corresponding financial institutions. In Europe, for example, we have the ECB which is in charge of monitoring the monetary policies for the Euro zone. Thus, the initial function of the 12 national banks, that are members of the Euro Zone, is put in question. So, it is simply a matter of time until there are some few but powerful financial institutions that are going to monitor huge blocks of our financial globe. Even in the USA, where there is no national bank, there nonetheless is a strong will to centralize the various commercial banks, which at the moment are estimated to be around 8000. During the period 1984-1994, the number of US banks decreased by 30% due to successful mergers and acquisitions.

Moreover, a big change in the structure of the global banking industry is the development of world Islamic banking. 10 years ago Islamic banks accounted for only US $50million, now they are spread in 75 countries and account for US $250million, which represents 15% of the global banking industry.

Another trend in the structure evolution, which is worth mentioning, is the retailers and automobile -makers like Mitsubishi that become banks.

Innovation and product development:

Naturally, any change in the financial environment stimulates new innovations. One of these innovations is increasing liquidity. When a bank decides to go global, it is naturally catering to needs and demands of more customers. This induces a greater demand for liquidity. Yet, another change is the reduction of agency and transaction costs. As market size increases, the cost of transactions increases as well. Thus, minimizing costs will be a major issue for banks. One of the ways in which this might be achieved is by economies of scale. This means bundling together basic instruments such as funds of investors (creating mutual funds). Another way is to computerize majority of the systems. This falls under the Business Process Re-engineering. Virtual banking is also a big part of the cost cutting innovations.

Another innovation that banks need to use is circumventing regulations and internal constraints. One way to bypass the reserve requirement constraint was to establish money market mutual funds. These are not considered as deposits and thus require no interest payments. Hence, they are not subject to reserve requirements. The restrictions on interests can be leapfrogged in the same way.

With innovation the arrival of new products is inevitable. Banks are engaging heavily to attract customers with their new products and opportunities. Retail and clients’ services are listed right at the top of a modern banks priority. As said before clients are becoming more and more demanding and force the banks into finding new ways of satisfying them. What is new today is standard tomorrow. Such new products include the arriving of ATM machines and their evolution from cash-dispensing machines into financial service depots, and telephone baking, which allows customers to arrange from their phone for account balance statements, transfers, , time deposit transactions and application for a variety of banking transactions. Some banks have even cut the time for loan approval. The Bank of Ryukyus, Japan approves a loan in 15 minutes. Banks are also keeping a look out on asset management since this is proving to be a rather prosperous market. People of today are much more aware of how they can use their assets to create a greater wealth; hence banks need to readjust their product line. However, there are numerous other products that banks are starting to integrate into the markets now. Such as trading and positioning (e. g. Commercial Bank), risk management products or financial engineering and structured finance (hedge funding).

Challenges:

As clients are becoming more and more demanding, the banks need to think today of the challenges of tomorrow. With respect to centralizing financial institutions, a commonly accepted approach needs to be found, because the issue of giving up sovereignty is definitely the issue. On a more micro perspective banks will surely need to start developing their services to a higher level. This could vary from a 24 hour service, more ATM machines, international acceptance of credit cards to lessen transaction cost, etc…

Furthermore, will banks need to product profitability in one form or another? A lot of banks are already looking closely into their hit ratios while considering the customer environment and pensions. With the help of this research banks can use the automation to develop new products tailored to specific customers.

On the marketing side banks have started to really hit it off in the late 90s. The fact that banks are now developing customer Information Systems enables them to create specific advertisement campaigns for specific clients. This is especially important for smaller banks since they often don't have the luxury of a large promotional budget. On a similar token banks are also forced to use customer databases to minimize their loan risk. Especially in times of economical hardship banks need to be extremely careful to avoid bad debt. Hence the Customer Information Systems will need to be integrated into the banks loan system.

Furthermore, banking should be following the pace of globalization of the world. Banks are expanding internationally by creating branches in host countries. However, there should be a better coordination between home and host country branches to make financial processes more effective and efficient. With the increase of international trade, the banks, as an intermediary, should develop instruments to better serve exporters, importers and shipping companies.

Although, some of these points seem pretty obvious, they are none the less points that need to be thought about, especially when penetrating new markets

The article was produced by the member of masterpapers.com. Sharon White is a senior writer and writers consultant at term papers . Get some useful tips for thesis and term paper writing .

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