With reference to the reading “ Globalizing International Banking”
a/ The principal difference between international banking and global banking
The article provides a certain classification of two banking models bases on the way their foreign assets are financed. The international model of banking system gather their funds via domestic market and then allocated to borrowers in a foreign market. By contrast, Global Banking generates funds in a foreign market and finances its claims on borrower in the same foreign market. In this way we can see that international bank concentrates on cross border business while global bank mainly focus on local market businesses.
b/ Identify five ways in which a bank headquartered in the USA can fund loans to a borrower in Japan, and classify them as examples of international or global banking
With reference to the article, we can distinguish five ways which an USA bank can fund loans to a borrower located in Japan as follows:
* USA depositors deposit their saving to Bank Head Office which allow them to make loans to Japan borrowers via cross-border loan processing. Since this process involves cross-boundary it is considered as International Banking. * USA customers make deposit to head office where in turn deposits these funds at its Bank affiliate in Japan. The Bank affiliate then give these funds as loans to Japan borrowers. This is also an International banking system. * Another way to fund loan in this case is that Head Office in USA gets deposits directly in Japan market and in turn gives loans to Japan borrowers. The whole process is done by head office in USA without involvement of any local bank affiliate or USA saver. Since this case also involves cross border process , it s classified as International Banking system. * An different way is that Bank affiliate in Japan can generate fund by their own from Japan savers and gives these funds as loans to Japan Borrowers in the same country. In this case, the fund is fully raised in local market without any involvement of USA Head office, so it called Global Banking system. * Still we have the same system as the previous one when the USA saver deposit their saving to Bank affiliate in Japan and the funds give to Japan borrowers.
The ratio of locally funded foreign assets to total foreign assets is referred to in the reading. What value will this take for a pure global bank? What will be the value for a pure international bank?
The foreign assets, especially the ratio of cross-border assets to locally funded ones, is the best measurer to classify a banking system as International or Global. According to the article, this measurer ratio would be, (total local assets)/(total foreign assets)=1 for pure global banks and 0 pure international banking system.
Identify five reasons for the move away from international and towards global banking since 1980s. According to BIS reporting data showing in graph 1, we can easily see the movement of banking system from international to global banking during certain period of 1980s. Especially US Banks local claims has been increased by 400% while the foreign claims were increased by 55% (Bis Reporting Data table). There are some reasons which we can find to explain for this shifting are as follows : * Over the last generation, Most of Bank have altered their new strategies by increasing their assets and liabilities in foreign markets. This goal has achieved via efforts of developing consumer banking by turning depositors into credit card user and mortgage customers, and vice versa. The growth of security businesses within a country also tends to lead to a balance of assets and liabilities. * Another reason we can see is the banks tend to reduce their cross-border footing by selling and originating international claims rather than holding. The bank had been beneficial from development of Bonds and Securities in local market That help to increase...