Global Banking Industry

Global Banking involves providing several services that even local banks indulge in. these services include lending, project financing, asset management, and advisory services. However, global banks do this in international financial markets. They usually work in money and foreign exchange. There are numerous ways in which you could segment the banking industry. One of the ways could be the sector in which the bank operates. For example, you could have agricultural banks (Credit Agricole) or employees bank (any credit union). You could also do the segmentation by fields of activities.

Such as commercial banks (Citibank) or investment banks (Goldman Sachs). Commercial banking covers services such as cash management (money transfers, payroll services), credit services, deposit services and foreign exchange. Whereas, investment banking is in charge of services like asset securitization, coverage of mergers and acquisitions, securities underwriting, etc. However, because of the deregulation of the financial sector, some of the commercial and investment banking institutions are competing directly in money market operations, private placements, bonds underwriting, etc.

It is, however, believed that all these segments are secondary to the geographical segmentation of the global banking industry. When defining the geographical segmentation it is probably best to start with the main financial markets on the globe and its corresponding financial institutions. In Europe, for example, we have the ECB which is in charge of monitoring the monetary policies for the Euro zone. Thus, the initial function of the 12 national banks, that are members of the Euro Zone, is put in question.

So, it is simply a matter of time until there are some few but powerful financial institutions that are going to monitor huge blocks of our financial globe. Even in the USA, where there is no national bank, there nonetheless is a strong will to centralize the various commercial banks, which at the moment are estimated to be around 8000. During the period 1984-1994, the number of US banks decreased by 30% due to successful mergers and acquisitions. Moreover, a big change in the structure of the global banking industry is the development of world Islamic banking.

10 years ago Islamic banks accounted for only US $50million, now they are spread in 75 countries and account for US $250million, which represents 15% of the global banking industry. Another trend in the structure evolution, which is worth mentioning, is the retailers and automobile -makers like Mitsubishi that become banks. Innovation and product development: Naturally, any change in the financial environment stimulates new innovations. One of these innovations is increasing liquidity. When a bank decides to go global, it is naturally catering to needs and demands of more customers.

This induces a greater demand for liquidity. Yet, another change is the reduction of agency and transaction costs. As market size increases, the cost of transactions increases as well. Thus, minimizing costs will be a major issue for banks. One of the ways in which this might be achieved is by economies of scale. This means bundling together basic instruments such as funds of investors (creating mutual funds). Another way is to computerize majority of the systems. This falls under the Business Process Re-engineering. Virtual banking is also a big part of the cost cutting innovations.

Another innovation that banks need to use is circumventing regulations and internal constraints. One way to bypass the reserve requirement constraint was to establish money market mutual funds. These are not considered as deposits and thus require no interest payments. Hence, they are not subject to reserve requirements. The restrictions on interests can be leapfrogged in the same way. With innovation the arrival of new products is inevitable. Banks are engaging heavily to attract customers with their new products and opportunities.

Retail and clients' services are listed right at the top of a modern banks priority. As said before clients are becoming more and more demanding and force the banks into finding new ways of satisfying them. What is new today is standard tomorrow. Such new products include the arriving of ATM machines and their evolution from cash-dispensing machines into financial service depots, and telephone baking, which allows customers to arrange from their phone for account balance statements, transfers,, time deposit transactions and application for a variety of banking transactions.

Some banks have even cut the time for loan approval. The Bank of Ryukyus, Japan approves a loan in 15 minutes. Banks are also keeping a look out on asset management since this is proving to be a rather prosperous market. People of today are much more aware of how they can use their assets to create a greater wealth; hence banks need to readjust their product line. However, there are numerous other products that banks are starting to integrate into the markets now. Such as trading and positioning (e. g. Commercial Bank), risk management products or financial engineering and structured finance (hedge funding).