International Banks Functions and Regulations - Essay Example

International Banks Functions and Regulations Introduction Evidently, a majority of the international banks are continuously bending in the trend ofbecoming more composite in terms of their functionality and regulatory measures. Their focus has shifted more towards bringing about new banking products, services along with creating new dissections in organizational structure. Moreover, the international banking institutions provide much emphasis in their quality of service and operational effectiveness (Chiline, 2002). With this concern, the essay aims at discussing about international banks, its types, services offer by them, operational procedures, risks that they face and most vitally their respective functions along with regulations. Overview of International Banks A proper definition of International Banks mainly depicts a facility, which permits various funding organizations belonging to diverse regions of the nations throughout the globe to perform credit and debit operations. It also facilitates these funding organizations to participate in offering various loan provision services to various foreign inhabitants and establishments. Depending on the services, the international banks usually avails various sorts of exemptions in terms of reserve requirements and imposed tax rates that set by the respective governments. It is worth mentioning that direct as well as indirect support from the above discussed funding organizations such as ‘International Banking Facility’ (IBF) eventually leads towards bringing about greater efficiency and effectiveness in the operational procedures of multiple international banks (Chrystul, 1984). After acquiring a brief idea about the international banks, it can be apparently observed that these banks offer a wide variety of services to both domestic and international clients. A few of these services have been described in the following. One of the services, which offer by international banks, is the ‘letter of credit’ service. This service is basically provided in the cases of products or services that purchase by individuals or organizations from the international banks. In relation to this particular service, the banks issues a document, which acts as an assurance of payment to the seller of the goods or the services, even if the buying individuals or organizations fail to comply with the payment process. It would be vital to mention that the banks issuing the ‘letter of credit’ document will certainly make the buyers liable in making payments to the sellers. Specially mentioning, this particular service helps in determining whether the quality of goods and services offered by the sellers comply with the expected standards or not (Mugasha, 2003, pp. 1-10). The second service, which offers by the international banks, is the ‘Wire Transfer’ service, a method of transferring funds between two locations in a virtual manner. This service is mostly used by overseas banks for transferring huge fund figures within short duration. The international banks follow a variety of network security protocols in order to make their transactions faster and safer (Commerce Bancshares, Inc., 2014). The third service is the ‘Forex and Treasury’ service. This service is mainly offered at the time when currency trade takes place in the global business markets (UCO Bank, 2013). Apart from the above discussed services, multiple other services such as ‘NRI Banking’, ‘Foreign Currency Loans’, ‘Finance/Services to Exporters / Importers’, ‘Remittances’, ‘Resident Foreign Currency (Domestic) Deposits’ and ‘Correspondent Banking Services’ are also offered by majority of the International banks in this present day business scenario (UCO Bank, 2013; Commerce Bancshares, Inc., 2014). Apparently, international banks are categorized into four distinct categories that have been explained in detail in the following. The first category or type is the ‘Retail Bank’, which generally acts as a bulk market supportive bank. This type of large commercial banks establishes their respective branch offices in multiple local areas allowing the local populaces to avail the bank services. This sort of bank provide services such as ‘savings and checking accounts’, ‘sanctioning of personal loans’,’ provision of mortgages’, ‘debit/credit cards facilities’ and ‘certificates of deposits’ (CDs)(Pond, 2007, pp. 7-8). The second type of international banks is the ‘Correspondent Banks’. These banks are also regarded as such financial organizations that lend services on behalf of other financial establishments. In this similar context, the services include ’conduction of business transactions’, ‘deposit handling’ and ‘document gathering’ among others on behalf of other financial organizations. The domestic banks usually take assistance from these correspondent banks for controlling international fund transaction operations. The main reason for this is the limited access of the domestic banks towards foreign financial markets (Al-Suwaidi, 1994, pp. 122-124). The third type is the ‘Foreign Branch Bank’. This sort of bank often acts as a branch bank, which tends to operate the business of the parent bank in foreign countries. The aforesaid banks need to follow the banking rules and the regulations that are formulated by their main home branch. This concept can be duly considered as a form of offshore banking (Slideshare Inc., 2014). The fourth category is ‘Subsidiary and Affiliated bank’. These banks remain mostly incorporated in the international markets and are a form of foreign branch bank. It would be vital to mention in this similar concern that these banks might remain under partial or complete control of the parent branch, which might be located in some other nation. However, in contrary to the partial control of the subsidiary banks, the affiliate banks works in complete independence and is not controlled by the parent brand (Slideshare, Inc., 2014). Reasons for Establishment of International Banks It is worth mentioning that proper establishment of international banks in a nation helps in improvising the association between the international banking along with financial institutions and the economy of that particular nation. This might sound fruitful towards bringing about alteration in the entire industrial scenario in the form of greater financial development. It has been evident that the governments of any nation basically encourages establishment of international banks with the intention of bringing about improvement in the currency exchange process. Specially mentioning, the international banks fundamentally form multiple regulatory norms in order to keep their functionalities in constant check. Nonetheless, it is the common populaces who also reaps significant benefits from the international banks, as these banks establish multiple local branches to avail them their required financial services. With the increase in the establishment of international banking organizations, it can be affirmed that the level of economic benefit will substantially rise due to enhanced revenue earning in the banking system (The World Bank Group, 2014). Moreover, the formation of international banks provides greater assistance to the governments of diverse nations in order to acquire better regulatory control over the financial stability factors persisting within those nations. It is worth mentioning that these banks possess the capability of driving the economy in terms of making significant changes specifically in the taxation rates. Apart from these reasons, it would be crucial to mention that there lay various issues or risks that face by the international banks. In this similar context, the issues or risks that often face by the international banks include currency risks, complexities in the arrangement of credit systems and greater competition amid the banks for acquiring substantial market share among others. It can be affirmed that these sorts of risks which face by the international banks owing to the reasons of increased level of expanding international business activities and gaining momentum of globalization along with internationalization (The World Bank Group, 2014). Functions and Regulations of International Banks The various potential functionalities of international banks can support a nation to develop its economy at large. This can be justified with reference to the case of ‘The International Bank for Reconstruction and Development’ (IBRD). This was established in the year 1944 and started to operate in the year 1946 in relation to the segment of international investments. Evidently, the major functionality of IBRD can be apparently observed as providing greater financial assistance specifically to the middle-income developing nations in terms of offering them with loan facilities. Another functionality of IBRD can also be viewed in facilitating along with promoting foreign investments through taking assistance from the private investors. In order to analyze the functionalities of international banks, one of the international banks i.e. ‘City bank’ can be taken into concern. This bank segregates its functioning into parts. The first part is corporate banking and the second part is customer banking (Mobeen, 2011). The operations included in the arena of customer banking includes ‘tele helpline service for customer assistance’, ‘car financing service’, ‘home loan service’, ‘banking service including handling of accounts’ and ’credit card service’. Whereas, the operations conducted in corporate banking basically includes handling ‘trading services’, ‘clearing services’, ‘collection services’ and ‘commercial payment services’(Mobeen, 2011). With regards to analyze the regulations of international banks, it can be affirmed that regulatory measures that are taken by the governments of diverse countries play a decisive role in controlling the activities of banks that operate in the international economy. There lay wide variety of regulatory measures that the international banks might abide for proper functioning in the international business markets. For instance, regulations and restrictions in relation to currency exchange may result in slowing down the functionality of international banks by a certain level. Apart from this, regulations concerning pricing levels such as control over interest rates are also noteworthy. These eventually help in regulating the economic functionality at large. Other regulations relating to international banks can be depicted in the areas of ‘line-up-business’, ‘gaining ownership over other monetary organizations’, ‘assets reserve rates that the banks need to keep into hold’, ‘necessary insurance deposits’, ‘capital-adequacy obligations’, ‘credit supply to preferred enterprises’ and ‘merger formation’. However, in this present day context, the trends in regulatory patterns have moved from structure-oriented to market-oriented pattern, which in turn, resulted in increasing the competition level that face by the majority of the international banks in terms of pricing level and investments among others (international Competition Network, 2005). Conclusion As per the above analysis and discussion, it can be concluded that international banks play a decisive role in reshaping the economic structure of multiple nations. International banks can play a wide variety of roles acting as business performers, supporters and even regulators. A common example of World Bank can be taken into concern in this regard, which helps in providing greater financial assistance to member banks, resulting in indirectly facilitating economic development. Apart from delivering significant financial benefits, it has been apparently observed that the international banks often face multiple issues or risks while performing their respective functions. These risks can be related to currency risks and complexities in the arrangement of credit systems. The major functionalities of the international banks can be apparently viewed as offering financial assistance and promoting foreign investments among others. In this regard, the international banks require adhering with certain basic regulations with the aim of enhancing their functionalities. In this similar concern, the regulations of ‘capital-adequacy obligations’ and ‘pricing levels’ are noteworthy. References Al-Suwaidi, A. (1994). Finance of international trade in the Gulf. Netherlands: BRILL. Chrystul, K. A. (1984). International banking facilities. FEDERAL RESERVE BANK of ST. LOUIS, 5-6. Commerce Bancshares, Inc. (2014). Wire transfers. Retrieved from http://www.commercebank.com/commercial/international-services/wire-transfer.asp Chiline, V. V. (2002). Modern trends in global banking development. United States: Universal-Publishers. International Competition Network. (2005). An increasing role for competition in the regulation of banks. Introduction, 2-3. Mugasha, A. (2003). The law of letters of credit and bank guarantees. Australia: Federation Press. Mobeen, Z. (2011). Citi Bank. Information System Study Report Of Citi Bank Pakistan, 9-13. Pond, K. (2007). Retail banking. United Kingdom: Global Professional Publishing. Slideshare, Inc. (2014). International banking. Retrieved from http://www.slideshare.net/manoharprasad/9-international-banking The World Bank Group. (2008). The changing role of International banking in development finance. Global Development Finance, 1-4. UCO Bank. (2013). Forex & treasury services. Retrieved from http://www.ucobank.com/international-banking/treasury-services.aspx#.UxbQG6I27IU Read More