In order to understand International banking, students should first understand the overall history and development of banking. Although many of the examples of either a banking or country financial collapse may appear to the student to be outdated, the lessons learned (or not learned) are still relevant in today’s more globalized world of banking. For example, in applying the elements of the current sub-prime lending crisis, students will find that the three main causes for a banking crisis that is covered in this course are still viable:
1) Low capital-to-asset ratios (high leverage)
2) Low cash-to-assets ratios
3) High demand debt and short-term debt to total debt
Therefore, students should be aware that many banking concepts are not new ideas. Yet, at the same time, the text and class discussions should be integrated with up-to-date research (such as Internet use) that provides current information to increase student understanding of International Banking. In addition, although globalization has been a significant part on International banking growth in the last two decades, students should also be aware of possible retrenchment of in terms of increased isolation that may be taking affect due to the political environment, or more importantly due to economic ramifications tied to globalization itself. For example, how has the U.S. sub-prime crisis affected the banking and investment opportunities of other countries? How has/will increased world fuel costs affect world trade and eventually, global banking? How will the “greening” effect and global warming affect international trade and finance? These types of challenges may change international banking….Students would be advised to continue to monitor and research these types of questions in order to have an increased understanding of international banking. Good Luck!
In addition to the assigned text, the following is a brief history of international banking
Banking can probably be most directly traced to the twelfth and thirteenth centuries with the rise of great Italian merchant families such as the Medici who began providing banking services essential to the development of international commerce (Jesswein, 2006). Most notable to the advancement of modern banking was the introduction of bills of exchange, financial instruments that provided a means of exchanging currency across Europe. They also provided an important means of providing short-term credit (given the inevitable delays in transporting documents and currency), with interest indirectly charged through the rate of exchange and thus avoiding the prohibitions against usury (Green, 1989, as cited in Jesswein, 2006).
The next great advances came with the rise of the first truly international merchant banking houses, most notably the Baring Brothers and the Rothschild family, through whom banking, and in particular international banking, first began to reach the Americas. For example, Barings provided the financing for the United States government's purchase of Louisiana from the French and the Rothschilds are reputed to have been involved in financing both sides of the American Civil War. Later, banking houses began to arise within the United States itself, led by names such as Morgan, Oppenheim, and Drexel, alongside the continued development of international banks in Europe and Asia. (Green, 1989, as cited in Jesswein, 2006).
Although two World Wars and a global depression tempered some of the periodic booms in international banking and finance through the first half of the twentieth century, the Bretton Woods and GATT (General Agreement on Tariffs and Trade) accords after the second World War provided stability in international monetary relationships and liberalization of trade and capital movements. International banking thrived as the global economy exploded under this new found liberalization (Jesswein, 2006).
Concurrently, the introduction and...
References: Bank of International Settlements (2008). About us. Retrieved August 16, 2008, from http://www.bis.org/
International Monetary Fund (2008)
Organization for Economic Cooperation and Development (2008). About the OECD. Retrieved August 22, 2008, from http://www.oecd.org/home/0,2987,en_2649_201185_1_1_1_1_1,00.html
World Bank (2008). The World Bank. Retrieved August 16, 2006, from http://www.worldbank.org/
Topic 1.4 Investment Banking
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