Global Banking Gyrating Compass Compensation
The World Bank’s annual Global Financial Development report charts the South-South shift in particular regionally in global banking the past decade from the traditional Northern advanced economy outward pattern upon post-2008 crisis “exits.” It balances the costs and benefits of cross-border integration infusing capital, expertise and technology while also potentially magnifying shocks and boom-bust cycles. The world’s largest financial institutions which may be too big to fail are under increased regulation and surveillance, but developing country views remain mixed on foreign entry as it relates to skills building, small business credit and other areas original research can help address. According to a recent client survey of 200 public and private sector leaders in 40 nations opinion was split as 70% praised international banks’ product contribution, but an equal portion accused them of “cherry picking” prime customers and overly complex organizations creating instability. Regional competitors got more favorable marks than overseas-based ones, but stronger host and home country supervision was a consensus recommendation. Net foreign establishment has been negative since 2010, but emerging markets have taken 60% of the total as this group is half the industry in Europe, Latin America and Africa. The Southern share of syndicated lending has doubled to 8% by the latest figures, with East Asia accounting for one-third the amount. Neighborhood “brick and mortar” operations have likewise spread in the MENA region, and Brazil, China, India and South Africa are respective hubs in their geographies. However the review describes “globalization backlash” since 2007 ushering capital flow curbs in the form of macro-prudential policies and separately funded branches and subsidiaries. It urges institutional and infrastructure reforms to support the trend, since liberalization can be countered by “political entrenchment.” Credit registers and contract enforcement are important, and are more likely to drive household and small firm rather than blue-chip company focus. Greenfield investments as opposed to mergers and a diversified service mix may yield more positive long-term effects, but often options are limited under bilateral and multilateral trade agreements. In supervision while Europe is moving to joint arrangements under its Single Mechanism Southern Hemisphere pacts are in their infancy.
The evidence shows that South-South banking can smooth the credit cycle and increase per capita growth 1%, while relying more on local deposit bases. However regulatory capacity is weaker in these jurisdictions and affords less risk-sharing. Alternative capital market sources are now available that financial sector policies must also incorporate even as only large borrowers may retain bond access in difficult times. Stock markets in turn may have relatively unsophisticated disclosure norms that erode confidence and raise crisis odds when a multi-line conglomerate pursues both commercial and investment banking. Fintech is another sensitive subject with thousands of active firms and dozens worth more than $1 billion. Digital models may not have safety nets, data privacy and fraud protection and screening algorithms could be inaccurate or manipulated. On line platforms have only begun to draw oversight complicated by footprints in multiple countries under mass marketing. A “sandbox” approach is increasingly common to devise consumer safeguards and conventional bank ties stoke tremors from this technology earthquake, the Bank cautions.
