“The rise of Multinational Banking and its impact on common global market” illustrate
Multinational banking system is the system that a bank can operate its banking system in any countries to follow the rules and regulations of The Central Bank of those countries. It is actually the bank physically operate in more than one country. For example; Citibank already operates its banking in more than 90 countries around the worlds. As same as, HSBC bank and Standard Chartered Bank are operates their banking system in many countries all over the world.
In 1990, most countries undertook financial incorporation by reducing impediments to cross border financial transactions and an increased participation of foreign banks in the local banking system. This inclination was particularly prominent for Eastern Europe and the New Member States where the foreign multinational banks have become the dominant players in the local banking system in this market.
Multinational banking encompasses a variety of activities all over the banking system in the world.It includes trading currencies, borrowing and lending and financial international trade. All of these activities are delivered by the variety of organizational forms. On the other hand, multinational banks are different from other banks because they have the internal capital market. They get support from this capital market.
The multinational banks always try to follow their clients and they try to serve the better service than the other kinds of bank. It is true that the attentiveness of a small number of big clients to use the high technology to understand that how make the multinational bank operations are profitable.
Theories of Multinational Banking
There are many reasons for that a domestic bank can choose to become Multinational Banking System. We know that the multinational bank always try to fulfill the client’s mind satisfaction.The drivers justifying entry may differ depending upon the specific foreign market under consideration or the external and internal rules and regulations at particular point of time. There are some important theories of multinational banking system.
The theories of multinational banking are –
? Theories relating to growth and profit opportunities.
? Theories concerning leveraging of strengths.
? Theories pertaining to client activities.
? Theories relating to risk management.
? Miscellaneous theories of multinational banking.
All of these theories are most important for a multinational bank. It always follows all of these theories.
Factors of Multi-nationalization of Banking
Multinational banks are actually that those bank are physically operates in more than one country all over the world. If we see Citibank, then we can understand. Citibank already operates their offices in more than ninety countries all over the world. On the other hand, International banks involve cross-border operations and they do not set up their operations in other countries. So, I can say that multinational banking system is different from international banking system.
Multinational banks have experienced a rapid growth in the past year. The rapid growth of multinational bank loans has been in Eastern Europe. We know that Latin America has also experienced an increase rapid growth in multinational bank loans over the years to follow the deregulation and growing financial integration’s. The result of deregulation and growing of financial integration’s, cross border mergers and take over of bank grew from 320 in 1980s to 2000 in the 1990s. Multinational banks actually work like that they collect the local currency then combine that with funds borrowed from overseas and then lend that money domestically. It is true that multinational banks are often looks like the domestic banks, but their entry and their operations are area under discussion to international trade agreements.
On the other hand, multinational banks try to expend their global operations for two reasons.First is, the multinational banks always try to follow their clients as much as possible. They try to serve the better service than the other kinds of bank. Client satisfaction is their main point of view of to operate their banking system. Second is, the concentration of a small number of big clients to use the high technology to understand that how make the multinational bank operations are profitable. They try to understand their clients about their profit to use the high technology. These two reasons are most important to expend the multinational bank’s global operations.
Multinational Banks and Internal Capital Market
There is a good relationship between the multinational banks and the internal capital market in this world. The availability of the internal capital market affects the behavior of multinational banks. It is indeed that the internal capital market is actually makes the activities of foreign affiliates in host economics particularly different from those of standing alone the national banks. Large or big corporation of the world can establishes the internal capital markets that distribute the scarce capital, liquidity and all risks across the many units belonging to the holding.
Multinational banks have the high possibility to diversify the risk internationally and to optimize the allocate funds across their own network of international affiliates; like- higher returns and to efficiently the share liquidity. On the other hand, the affiliates of multinational banks locate in different countries and they may well face the different cost of different external funds. As same as, these banks may be collected their deposits from many countries all over the world. Their deposits system is done by their branches, agencies and etc.
Forms of Multinational Banks
Multinational banks are the bank which establishes operations in more than one country all over the world. It is actually physically operates in other countries. Multinational banks are sometimes referred to as foreign banks or comprised in the general category of foreign direct investment in the financial service.On the other hand, international banks are the banks that which operate across international borders and they do not establish physically operations in other countries.
Multinational bank operation can come with different forms, like- branch offices, subsidiaries, as joint ventures and as strategic partnership.
Branch office is an important part of mother companies. They have no capital of their own.
Subsidiaries are the own corporate entities which are totally controlled by the mother companies. But the character is that company is in host economy. Joint ventures are the separate corporate entities owned jointly by more than one Mother Company.
Finally, multinational company may establish a strategic partnership by buying a majority stake of an already existing domestic bank.
The main difference between various operational forms of multinational banks is their regulatory treatment.
Activities of Multinational Banks
Multinational bank activities are more limited in their scope than the activities of local banks and they tend to remain more restricted.In the past, the operation of multinational bank is limited by few factors in a host economy, such as, small capital base, insufficient physical and human capital and unfamiliarity in the host economy. Sometimes we can see that it creates miss understand between employees and the clients of the multinational bank. All of these may over come, but in the most situations this leads multinational banks to only expend in the market segments, where they are already active with the possible expectation of strategic partnership.
The market segment served where multinational banks have a clear competitive advantage. The main reason of to entire the multinational bank to a new economy is to provide services to multinational currencies which are already their clients in other parts of the world.
Multinational bank provide the better service than other bank. According to their services that the other banks are less familiar or they can not provide that service than the multinational bank. Foreign currency loans, acceptance and guarantee related to international trade and syndicate loans are includes in this service. For this reason, maximum time large domestic corporations want to become multinational bank’s clients. On the other hand, multinational banks always offer their services to high net worth individuals to attract new deposits and to provide consumer finances. Such retail banking services include brokerage services, mortgages, credit cards, customer loans, saving products and so on.
For example; Citibank provide Platinum Gold Credit Card. To use this card a client can purchase anything from anywhere in this world. But Mutual Trust Bank does not provide this kinds of card. Because, Citibank is a multinational bank and Mutual Bank is not.
Multinational Bank and Globalization
There have been two distinct waves of growth of modern multinational banking. The first wave occurred before the First World War and the second wave occurred in the 1960s. Today the activities of the multinational bank includes,
? Deal in foreign currencies, derivative securities, gold and precious metals
? Participate in the Euro market
? Borrowing and lending in the foreign currencies
? Provision of trade finance
? Trade in foreign securities markets
? Provision of corporate finance across borders
All of these services of activities includes that are also performed by the non-multinational banks.
In the Euro market, it is relatively easy for a bank to participate in Euro market loans and fund these loans in the offshore market without establishing the physical presence offshore. A similar situation occurs in the areas of trade finance and foreign exchange trading. If we look a bank which would be considered international, but not multinational, then it illustrates the taxonomic issues raised when considering multinational banking.
Correspondent bank always do clear transaction between banks.The domestic bank appoints a foreign bank to act as its agent for the transaction in the foreign country. They just create an agreement which is based on low cost. So, if a bank appoints a foreign bank for the clear transaction, then it will be the correspondent banking.
The correspondent banking also has the advantage of being relatively low cost method of the market. But in this market establishment cost is high and the regulatory barriers to entry are high. On the other hand, by engaging in international correspondent banking, the domestic bank has low cost entrance to the expertise of the foreign bank’s corporate and international departments, without the cost of establishing a physical presence offshore.
A representative office is a small office in the host country which coordinates a bank correspondent relationship .This office is actually information center of the mother bank. It also provides all the information of the mother bank and the host country. Clients can collect huge information about the mother bank from the representative offices. But a representative office can not create assets and do not take any liabilities. It just provides information about host country that it profitable for a business opportunity. A representative office is also deal with some correspondent matters, such as check clearance, trade transaction and foreign exchange. Their all task will be done by the online system.
Agencies provide advantage over representative offices in which they can conduct transactions. It is totally depends on the host’s country’s rules and laws. The limitation of an agency is that it can not raise and solicits deposit. But some countries allow agencies to accept their credit balance from resident which is linked to a specified purpose.
Merchant Bank Subsidiaries
Merchant bank subsidiary is actually as like as a merchant bank that is owned by a bank which is located in another countryA subsidiary bank also offers the wholesale service but would be disadvantage by lower credit rating than the case with a full banking license. On the other hand, subsidiaries are not subject to the same level of prudential direction.
A bank subsidiary is a separately incorporated bank that is controlled by a parent located in another country. Such subsidiaries are generally wholly owned, as this reduces potential problems connected with nonconforming minority shareholders in the world. The parent bank is always deal all things. Generally multinational bank prefer the bank branch structure to the bank subsidiary structure. On the other hand, sometimes the host nation regulator does not give the permission foreign branch to be established.
Multinational banking system is the system that a bank can operate its banking system in any countries to follow the rules and regulations of The Central Bank of those countries. It is mainly a bank is physically operate its operation in more than one country.
In 1990, most countries undertook financial incorporation by reducing impediments to cross border financial transactions and an increased participation of foreign banks in the local banking system.
Multinational banking encompasses a variety of activities all over the banking system.It includes trading currencies, borrowing and lending and financial international trade. All of these activities are delivered by the variety of organizational forms. For the multinational banking system, we can use some highly credit cards all over the world. According to this system, Citibank is providing the platinum credit card.
We know that multinational banks are different from others because they have the internal capital market. They get support from this capital market.
On the other hand, we know that a multinational bank try to expend their global operations for two reasons. One is, the multinational banks always try to follow their clients and they try to serve the better service than the other kinds of bank. Another is, the concentration of a small number of big clients to use the high technology to understand that how make the multinational bank operations are profitable. To provide the correspondent banking, which includes representative office, agency, merchant bank subsidiary and bank subsidiary it is preferable for clients.
To prepare this research paper I have collected huge data about the multinational banking system and globalization. At first we have known that the multinational bank is a bank that is physically operates in more than one country. So I think a multinational bank is very necessary for a client, because the client can use the banking system all over the world. For example; banking transaction would be available. Multinational banks are sometimes referred to as foreign banks or comprised in the general category of foreign direct investment in the financial service.
It is true that multinational bank provide the better service than other bank. For this case, they are more familiar to do something while another bank can not do that. Some services like, foreign currency loans, acceptance and guarantee related to international trade and syndicate loans are available in the multinational bank. But the limitation of multinational banking system is very high and they tend to remain more restricted.
On the other hand, multinational banks are different from others because they have the internal capital market and they always get support from this capital market. I think it is the big opportunity of the multinational bank.
We know that some activities are available in the multinational bank. Which are deal in foreign currencies, participate in the Euro market, borrowing and lending in the foreign currencies, provision of trade finance, trade in foreign securities markets, provision of corporate finance across borders and etc. All of these activities are most important.
On the other hand, multinational bank also provide correspondent banking, representative office, agency, merchant bank subsidiary, bank subsidiary and so on, which is helpful for the client to their transaction.
Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Franco Pozzolo and Micol Levi. Multinational Banking in Europe: Financial Stability and Regulatory Implications Lessons from the Financial Crisis. Madrid March 15, 2010
Weller, Christain, and Mark Scher, 1999, Multinational Banks and Development Finance, Centre for European Integration Studies Working Paper, forthcoming.
Elisa A Bain, Justin G Fung, and Ian R Harper. “Multinational Banking : Historical, Empirical and Case Perspective”.
W. Barry. “Multinational Banking and Global Capital Markets”. School of Business, Bond University, Queensland, Australia.
Marin, D. “Are Multinational Bank Different”. University of Munich. Madrid. April 2010
Ball, Clifford A. and Adrian E. Tschoegl (1982), ‘The Decision to Establish a Foreign Bank Branch or Subsidiary: An Application of Binary Classification Procedures’
Journal of Financial and Quantitative Analysis, XVII (3), 411-424.
See, collected from online journal by Dr.Rohit Pande; paragraph 7.
See, multinational banking in Europe: financial stability and regulatory implications by G.B.Navaretti, G.Calzolari, A.F.Pozzolo and M.Levi, page 12, paragraph-18
See, the impact of multinational bank on development finance, by Christian E. Weller and Mark J. Scher, paragraph-4
See, the impact of multinational bank on development finance, by Christian E. Weller and Mark J. Scher, page-8
See; multinational banking and global capital market by Barry Williams, paragraph-3
multinational banking and global capital market by Barry Williams, paragraph-6
See; multinational banking and global capital market by Barry Williams, paragraph-7