GLOBALIZATION AND INTERNATIONAL BANKING: IMPORTANT ASPECTS
1. Integration of global economies created more opportunities for expansion of trade and financial investments. In view of this, banks as an important segment of international banking system and financial markets started their expansion through different channels like correspondent banking, foreign branches, off shore banking units to play active role in today’s globalized environment. Globalization of trade, commerce, deregulation and free movement of capital across borders has speeded up the growth of international banking.
2. International markets operate virtually on 24×7 basis, on account of their geographical locations. This special feature not only increases opportunities but also created cross border risks as well. Hence risks especially cross border risks, are unique features of international banking operations in a globalized environment.
3. International legal frame work and regulatory compliance is another important aspect which make the operations of international banks more complicated and difficult as well. Globalization and the advent of new technologies have changed the perception of managing business in international centers.
4. International Accounting Standards – On account of globalization, many economies have introduced deregulations and reforms. In view of these changes there is a requirement for the convergence of local financial reporting standards with International Accounting Standards (IAS) in order to have transparency in their operations. This would assist economies to attract investments from global investors. The business entities, especially banks are exposed to the changed globalized environment, and therefore required to comply with the International Financial Reporting Standards (IFRS). IFRS are standards and implementations adopted by the International Accounting Standards Board (IASB).
5. Bank for International Settlement (BIS) – Recognizing the importance of better controls and financial discipline among the international banks, the BIS, which acts as the world’s central bank for central banks, has been playing a very active role in guiding and regulating the international banking system in the globalized environment. Basle norms have suggested measures for strengthening capital structure of banks by means of capital adequacy ratios and other measures like prudential norms. BIS addresses the issues relating to risk management and corporate governance practices of banks as well.
6. Technological innovations – Technological innovations have integrated many international financial centers and helps banks in their liquidity management and quick funds transfers. At the same time the technology revolutions have created room for operational risks as well. Banks, especially international banks face challenges to handle the money laundering activities and frauds on account of hacking into their technology.
7. International Financial Markets – Globalization has increased opportunities for international investors to tap different international markets, arbitrage deals, and diversification of their investments. In view of globalization international banks face many risks. International banks have launched many innovative financial instruments to handle these risks in the form of financial derivatives like forward exchange contracts, futures, options, swaps etc., International banks are able to have access to funds from different cross border centers, thereby they are able to offer External Commercial Borrowing facilities to their clients, as well as designing of loan syndications.