Critically Analyse and Assess the Trend Towards Globalization of the Banking System - Assignment Example

?Introduction The movement toward globalization has begun to alter the values of businesses and the functioning which is required for success and growth within every organization. A specific system which is altering different components in relation to this is the banking system, specifically with divisions created with domestic and international banks. The changes which are now being made are based on the need to alter and change specific approaches that are a part of the banking system, specifically so it can meet the needs of other organizations and the components which are associated with the global approaches which are needed. The changes include demands from new trends as well as components within the internal organization that are being redefined. Definition of Research Problem The concept of banking is one which is based on national needs, as well as regional elements which are associated with various groups of individuals. However, globalization is beginning to change the internal and external environment while altering products and services offered by those who are a part of banking. This is now leading to several problems, specifically because of the different needs in various parts of the world. Currency exchanges, cost of living relationships, lending channels and basic operations are now being altered, specifically because of needs that are associated with different regions of the globe. The changes are now leading to alterations in market value and many banks which are either making changes domestically or which are becoming dependent on foreign investments and stocks for new opportunities with banking (Cetorelli, Goldberg, 2008: 14). The research problem defines the problems which are occurring with global transfers as well as how this is redefining the services, products and transfers that are within various banking systems. Literature Review The concept of global banking is one which is now only beginning to surface as a way to work with the corporation of banking systems. In the past, there were basic services and products which were offered specific to the currency of a location. The services and products combined attributes of banking according to one’s culture, capital flows and the financial firms within a specific country. The changes today are now based on an expansion of services and products to help nations in various regions across the world while offering new products and services for changes with global banking. The concept of global banking systems includes the options of lower cost of capital, improved allocation and investments with property rights and institutions. The banking systems are incorporating micro-financing as well as basic services and products which can transfer across borders. Many in other countries are using this as one of the first methods for financing within the country (Mishkin, 2008: 135). The main capabilities for banking systems to establish at a global level come from the enhanced technology which doesn’t define the borders or other applications which are a part of the system. Information processing, telecommunications and other options are providing banks with new alternatives for going overseas. This is combined with the investment opportunities which are continuing to arise for those that are in the different countries. The financial technologies are one of the investments that are leading the way with those who are looking at global expansion from domestic relationships. However, this also limits the products and services which are available and defines a different type of system and sets of services which can be available overseas. Most that are transitioning into this are still experiencing barriers for entry with the government as well as with different needs that are from the technology and the expectations within a given country (Berger, 2007: 1955). Limitations to the Banking System While there are specific aspects that are related to technology, most are finding that this transition is one which is too new to offer complete security and is creating tension with expansion in different countries. Fraudulent associations with banking as well as glitches within the software that is used for financing are the main ways that the banking system is unable to create a specific relationship to the banking system. The main fault is coming from transitional countries which are rising from a 3rd world development to one that is based on having development to offer the same options as the original banking system. This is creating the inability to predict results and is leading to failures that are associated with the overall system, making the options for economic losses as well as the elements of development remaining with blockades because of the new associations with banking (Honohan, 2000: 83). The problems which have arisen with technology are also inclusive of other weaknesses that are a part of the expansion into the global market. The risk that is defined within the market now consists of a three stage analysis for noting the risk. This includes rising competition, efficiency within the banking system and credit risk because of a lack of knowledge from different regions of the world. The competition is based on the domestic markets remaining more efficient than those expanding to global regions, making it difficult to move into the correct banking system. The competition is furthered with the technology, systems and the different risks that are associated with culture, currency and expectations with banking systems. The several disadvantages of those working in domestic markets and moving to global relations then create several risks for expansion into various regions (Pastor, 2002: 895). External Threats to the Banking System The internal environment is one area that has disadvantages because of the competition and the misunderstandings often associated with banking. However, there are also intertwined problems with the external threats when a system moves from a national to international presence. The most significant threat comes from the changing economy and the fluctuations which come from various countries. While the economy is impacted in one way, there are some difficulties when a crisis occurs within a specific nation that the bank is in. This affects the other crisis areas that are a part of the financial relations. This is combined with capital flows that move into the larger economic system and which restrain or force changes within the economy for banking. The main threat comes from trends which become intertwined with the domestic market and which continue to intertwine with the current changes both at a national and international basis (Rousseau, 2003: 57). The concept of economic problems and financial crisis also relates to the changes into sustainability which comes from the inadequacy of financial institutions. When a bank is located in the domestic market, there is a stock market, expectations with rises and falls and a secure system which can respond to developments associated with the specific region. The exchange of money and the expectations are also stable. However, the pressures which occur and differ between regions with a global bank don’t have this same sense of stability. The inability to sustain the financial system from one domestic market to another and the inadequacy that is associated with the services and products offer all become threats. The domestic market is easily able to continue to get the different options available while filtering of money and other systems continue to remain instable because of the differences in the domestic market. These lead to altering trends in the external market, specifically which causes the domestic banks to remain at an advantage over international banking (Ferguson, 2005: 5). Building of the New Economy To begin focusing on both the internal and external threats, are different possibilities which many are looking at in association with global banking systems. Europe is one of the regions which are leading the way with this, specifically because of the emergence of the new economy. The implications that are a part of the new economy are based on a breaking down of barriers and territories that are no longer applicable to globalization. The main ideal is to impose restrictions on global banks while creating a sense of conformity to the laws that are within Europe in terms of trade, investment and banking needs. Combining these aspects and leading to policies and laws with the banking system then creates a different approach to the global economy as well as what can’t be done to match or change the trends. This stops the impact of economic fluctuations and market trends from creating changes with both the domestic and international market in the region while offering controls on the influences which are continuously moving into the economy (Stiglitz, 2003: 4). It is known that the restrictions and associations with making the banking match with domestic markets can prevent crisis from occurring which may be affected in another region. Taiwan and Korea are examples of this, specifically as the domestic markets are able to stick with specific regulations. If a banking system that is global moves into the territory, then they have to match the regulations and expectations from the government which is combined with restraints and matching capacities with the domestic banks. While this helps with controls and stops economic crisis from reaching the main blocks, there are also regulations and threats which arise with global banks, specifically because of the amount of competition which arises from the domestic banks. Unless they are outside of the other banking systems, such as through the International Monetary Fund or World Trade Organization, compliances are applicable. This includes tariff and trade agreements as well as agreement to the country laws and regulations (Mishkin, 2007: 259). Criteria With Banking The several complexities which have arisen from banking systems moving into different territories has also created different approaches to the system. In general, global and domestic banks state that there is unequal distribution of rights and opportunities. This comes specifically from debtors who have higher shares and the ability to provide more lending. It also occurs from the regulations and expectations that are a part of the competition within banking, making it difficult for banks to continue to work at the same level. The criteria also apply to currency changes and the overall values which are associated with living in a specific community. Each of these are leading to inflation, unequal spending, and imbalances with both deposit and loan services, dependent on the bank and what can be provided within a given country (Torre, Yeyati, 2002: 8). The responses which are occurring from the imbalances have led to specific criteria that the banking system is following to continue to expand and remain in the competition as a part of the system. The central banking practices that have been defined have now led to trading relationships that are defining the main outcomes for competition. Network pressures, compliance with international financing by associating with specific regions through the networks and boosting prestige in a given area are the main components banks are using to get ahead of competition. By associating with a given culture, there is the ability to appear as both domestic and international while moving into the relationships with the area. At the same time, this makes the compliance with the banking system easier to follow with the policies and regulations which are in a given area. Trading relationships are being built with the ideal to focus on overcoming the domestic relationships while finding a different way to change associations with the various regions (Polillo, Guillen, 2005: 91). The approach which is being taken for banks is now divided into the type of global areas which many are considering as a primary target. Developing areas are known as a primary area, specifically because of the need to offer more services for the economy and the potential of moving into an emerging economy and remaining ahead of the competition with the servers which are offered. This is combined with the developed markets which are the focus of many, specifically because the compliance with policies can be implemented if the right networks are in tact. This often brings new opportunities for banks while expanding the services in a way that can offer more return for the bank. The amount of capital flight as well as the alternatives which are available are providing several options to those who are interested in moving in with the competition of the domestic market while providing new opportunities to those that are in the market (Calvo 2002: 37). Case Studies The different concepts which are used for banking can be seen with several systems which are now moving into the era of globalization and trying to expand from domestic to international markets. The most common approach which is used is based on building the Internet sector and creating online portals for those that are involved in the domestic sector. This transfers to the different regions and allows the Internet to offer international banking, as opposed to having brick and mortar locations in various areas. According to a recent study (Jayawardhena, Foley, 2000, 19), there is a specific focus on banks that are using the Internet to leverage the way in which customers are able to go into the banking system, specifically which is based on empowerment methods for loyal customers. The Internet applications are allowing the banks to expand to different regions within the domestic area and are providing more loyalty options as a part of the banking system. Cost and efficiency is the main outcome which is occurring from these specific attributes (Jaywardhena Foley, 2000, 19). An example of this particular application, as well as the ability to expand into an international bank is from HSBC. This particular bank has 9500 operations in 85 countries and specifically focuses on the option of providing international banking. This is done first through the Internet banking which gives anyone access to their account from anywhere in the world. This is followed by the ATM cards and the options for paying online, both which allow the banking system to provide alternatives for those who want banking in various locations. The specific approach is followed by brick and mortar businesses that are in each region, all which provide extra tools. These businesses are able to comply with the policies of each region and are listed as domestic banks first all which are divided by country so the policies comply with what is needed. The combined aspects that are a part of the banking system have led to management programs within the internal environment as well as with expansions into a global market to offer even more for those that are interested in international opportunities (ECA, 2011: 1). The success of HSBC is with the integrated skills which have been used in both the internal and the external market. The internal market consists of integration with technology and the customer services which are needed to meet those that are looking for international baking. This also consists of an environment which works with the technological applications to make sure that there are the right opportunities available for the specialized units. These applications have provided both physical and technical solutions for banking. The compliance with regulations and the ability to build in various locations according to policies and restrictions with currency further help to define what the changes need to be with the global banking system. Each element then moves into consistency with the requirements from trends. The economic fluctuations don’t cause changes from one regional branch to another while customers are able to have continuous demands met. The integration of this system has led HSBC to becoming known as the world’s local bank and as the first mixed method which is used for the global market (Ellis, 2006, 2). Another case study which shows the evolution into the industry of banking is from J.P. Morgan Chase. This particular bank was named as the first bank to move into a global market and to build a reputation as an international bank. This included movements into Germany and Japan as well as London and Paris and which now consists of 40 branches around the globe and in 25 countries. However, the bank hasn’t expanded since the 1970s into other regions and has programs which are still specifically for the United States. The expansion which has occurred since this time is based on products and services for the Western market while the known banks that are in other regions are either in developed countries or are secondary markets for Chase. While there are programs established for each region, the ability to progress through the market into a true international presence is one which is not providing direct associations with the banking system (Chase, 2011, 1). The presence which Chase has shown shows how the concept of global banking is one which requires specific applications. The areas which Chase worked into were developed countries, such as Japan and Europe. Chase was easily able to establish branches in this region because there wasn’t a sense of division in terms of currency and development. More important, there were implications that were based on the various applications for the global market. However, it is also seen that Chase hasn’t developed into developing countries or expanded since the 1970s. This shows that there is limitations in the understanding of global banking as well as problems and pressures which are continuing to arise in terms of the internal and external environment as well as how this applies to the banking systems which are now located at international levels. The concepts which are seen with the banking system and with Chase not only show that the system isn’t fully established to work into domestic markets. The lack of expansion with Chase since the 1970s reflects with the technological components that are not built by the specific group. There isn’t a large influence of online banking, such as HSBC has. There also is limited integration of technology which is used through the bank and which isn’t providing alternative solutions to those who are interested in banking with more convenience. For Chase, this limits the reputation with international clients and keeps the location limited to the developed countries as well as the regions which were known most in America for using the Chase system. To change this, Chase would have to upgrade the technology, move into alternative regions and change specific policies that are associated with the time frame and the growth of current companies. These two case studies show that there is a significant difference in the approach to the internal environment in creating the right impression within a given area for international relations with banking. It also shows that there are several limitations which are a part of international banking, including regulations and policies, government restrictions, expectations with brick and mortar banks and the establishment of technology that is a part of the environment. These are consistent with demands from consumers that want easier ways to bank as well as expectations which are coming from the current economic fluctuations. This creates complexity in approaching the banking system and in establishing the right internal environment and response to what is currently occurring with the growth and development of the banking system. Conclusion When looking at various components of the banking system, it can be seen that development of global systems is one which is continuing to change. The globalization, while accelerating with the use of technology, still hasn’t found a place for most international banks. Except for banks such as HSBC, which has developed an environment for international relations, there is the inability to completely reach the market. Domestic relations, competition and the internal environment are some of the several limitations. The link of technology is also not firmly established within most regions, making it difficult to apply and get the right alternatives for building an online relationship with banks. The concepts which apply to the technology are combined with the components of external forces which are limiting the growth and establishment of businesses, ranging from economic fluctuations to the expectation of having controls as a part of the political and social order in various communities. For banking systems, this is limiting the establishment and development into the global market while presenting new challenges for expansion and growth of the companies. References Berger, Allen. (2007). “Obstacles to a Global Banking System: Old Europe Versus New Europe.” Journal of Banking and Finance 31 (7). Calvo, GA. (2002). “Presidential Address: Globalization Hazard and Delayed Reform in Emerging Markets.” Economcaa 72 (1). Cetorelli, Nicola, Linda Goldberg. 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