Strengths And Weaknesses Of The Banking System

There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).

Now, many of these banking groups are owned by foreign investors, despite attempted safeguards. This ownership has provided investors leverage and influence over the actions of the government because the government owes an exorbitant amount to these banks (Daniel Lederman). The same argument can be made about the United States’ government. This influence can be seen across the board as many decisions now seem to favor only a select few, forgetting about the ramifications for the many.

During the 1930s, the most prominent reason for U.S. banking regulation was to prevent bank panics and more economic disaster like those that had been experienced during the Great Depression. Later deregulation and financial innovation in industrialized countries during the 1980s eroded banks monopoly power, thus weakening their banking systems and seeming to embody the fears of post-Depression policy makers who instituted regulation in the first place. Fear that individual bank failures could spread across international borders creates pressure to harmonize bank regulation worldwide. One advocate suggests that universal banking, at least for industrialized countries with internationally active banks, would “level the playing field” by eliminating competitive advantages created by government subsidies. Although this is a valid point, one of the major driving forces behind the globalization of the banking world is the ability of banks to take

The move also provided a stiff competition between the Non-banking financial Institutions and the traditional banks where they were offering services which were traditionally limited to the traditional banks only. The rules that governed the banks were lifted and banks had the freedom to venture into other financial services which were not their core business. The rapid transformation of the global financial system resulted into a hive of financial investments due to the belief that the financial system was capable of controlling itself without being closely monitored.

There is a frequent criticism on financial globalization, concerning about economic volatility eventual increases and interruptions in autonomy of monetary policies. Prior importance and crucial nature of the situation is linked with the international capital movement and intermediation in funding. One major issue is that such globalization techniques may get the organizations and countries exposed towards shocks for economy at the time of limiting the tools relevant to that by policy authorities and central banks for home and abroad generated shocks. In this paper I have studied and aimed at striving for globalization and shocks identification in case of banking sector moving of the global and expansion strategies whilst they can also provide the minimal rate solutions for issues and problems.

Financial crises have plagued the international financial system for many decades. Indeed, they are becoming quite common lately. This quasi-permanent and problematic aspect of the global financial system can be highlighted by the problems regarding the sovereign debts of Asia, Africa, Central Europe, Latin America and the Middle East in the 80s, the 1987 stock market crash, the European foreign exchange crisis in 92-93, the bond market shock in 94, the financial problems that affected Asia, Brazil, Mexico and Russia in the mid-1990s , and more recently with the 2008 global financial collapse. This paper addresses the need for a globalized approach aimed at establishing a well-crafted legal framework capable of dealing with crises within the banking system, hence being able to protect the entire economy of the detrimental cascading effect that those instabilities can create. It compares the approach taken by the UK against the efforts being directed by the G-20 nations. It sheds light on the perspective that several important areas, such as systemic risk, consumer protection, market integrity, macro-prudential and micro-regulatory policies, as well as international competitive equality and shadow banking need to be scrutinized if we are to establish an effective international legal structure.

Lately, the international financial integration has increased. Over the years, the world economy has witnessed an increase in the number of individuals and businesses using international banking services. In today’s competitive global economy banks have the option to solely service their home market, to export services to foreign markets, or to establish a presence in that market. Essentially, banks have two options of expanding their operations in foreign markets. They can either service foreign clients through their domestic offices or they can establish a presence in the foreign markets. In general, the reasons for bank internationalization in

Today, it is considered to be a common knowledge, that the deregulation of domestic financial sector and opening of capital account of the balance of payments played a major role in the recent economic crisis of 2007-08. Policies, that have been stated above can be put together and named as the liberalization of the capital account. Liberalization stands for lessening of government regulations and restrictions in the economy. It offers a certain sector of the economy an opportunity to compete internationally. However, there are a number of risks connected with liberalization, which will be discussed later in this paper. Thus, the question is as follows: is liberalization worth the risk, or a wise implementation of capital controls leads to potentially more positive outcomes for the global economy?

Private banking industry has changed in a very basic way, driven by many key factors such as: free competition systems, modern developments in information technology (in particular, developments of the internet), and changing demographics. Private banks now operate in an environment shaped by increasing and shifting regulations, and in markets influenced by the uncontrolled situations of the world economy and geopolitical issues.

International banking has expended during the recent decades, and the following graph illustrates the increasing importance of the international financial activities.

mechanisms in the last decade in both developed and developing nations. The banking sector in

Processes of globalization have increasingly accelerated the interconnectivity of financial systems. As global systems have become more interdependent, risks now “transmit

As far as the banking crisis, the reserve and equity capital of the banks may not be enough. For the meantime, government injection of money would put the state budget at risk. How can we guarantee a improve lifeline? And it was realized after the financial crises hit Asian markets that international banks could supports the domestic banking sector. However, we required having a coordinated, cross-border supervision and surveillance.

Some studies such as [30], [31], [32], Focused on risk management and Islamic banks in the countries of Middle East. Study [32] was conducted on 421 countries Bank Middle and Far East. found that Islamic banks are less vulnerable and more stable and able to cope with the financial crisis compared to conventional banks. The study [30] sees that the most important risks to Islamic banks in the Middle East is the liquidity risk, followed by credit risk, as well as other risks the

Despite of increased attention on Islamic banks, recent studies have evidenced mixed result on the stability of Islamic banks over its conventional counterparts (Belouafi et al. 2013; Kassim & Abd. Majid 2010; Rokhim & Gamaginta 2009; Bourkhis & Nabi 2013). Thus, indicates that there is non-consensus on the stability of Islamic banks over its conventional counterparts.