International Banking - Assignment Example

International Banking International Banking International banking involves aspects in terms of services and operations involving the facilitation of international trade, loans, and grants to governments and other private institutions, and the manner in which money flows both for investments and for making payments. The United States banks involvement in international banking remains limited to the large banks in which the volume of the markets is concentrated. However, despite the late entry into international banking for American banks, which made entry late, though the banks’ participation in international banking has witnessed a significant growth over period with volumes going well beyond the elementary levels in offering of services both to the domestic firms and to individuals in equal measure. Based on such a perspective, it is an aspect of substantive importance that indeed international banking remains a core aspect in the global economy. This paper, therefore, discusses the various aspects pertaining to international banking, in terms of Volcker rule, Vickers proposal, Liikanen, and other recent European initiatives, which remain critical initiatives towards the European Union banking reform. International banking is indeed a different kind of banking and, therefore, requires appropriate structures and operative mechanisms for the realization of success in the industry. Following the current financial crisis, different economies are working on instituting various banking regulations in the international perspective, in the form of different initiatives, all aimed towards the establishment of stable international banking relations (Gambacorta and Rixtel, 2013, 19). As such, legislation on the European Union’s banking structural reform is currently being determined, from which European Union banks are required to have a distinction between investment businesses from the retail businesses. However, in the case of United States banks, a different perspective is visible, especially on the separation aspect of investment business and the retail businesses. In the United States, the separation aspect is not a requirement for United States banks; however, for the other banks of non-American origin operating in U.S., would require that the banks have operations under a single U.S. holding company (Gambacorta and Rixtel, 2013, 14). For the achievement of such an aspect, a number of modifications would be necessary, especially for the EU banks with affiliated US businesses. In order to achieve such a perspective, a number of aspects have appeared including the Volcker rule, Vickers proposal, Liikanen, as well as other recent European initiatives. The major reason for the development of the different initiatives is to establish an insulation of various financial aspects with substantive importance to the economy. Equally, the initiatives seek to offer protection to consumers from risky, though less important activities. Despite the various negatives associated with the separation aspect, it remains an aspect of substantive important on the benefits associated with the separation. Such include, preventing the subsidies supporting protecting aspect from lowering risk-taking costs as a means of encouraging moral hazards in business, reduction in the scope of interest conflicts through preventing aggressive risk culture from getting infected by the traditional banking businesses (Gambacorta and Rixtel, 2013, 22). Others include the offering of protection to various institutions from participating in activities of losses emanating from sources other than those of the government activities as well as the reduction in complexity of the banking institutions as a means of enhancing management and strengthening of the market discipline . In order to achieve the above aspects, it is clear that the initiatives have to come in handy. For Volcker rule, despite being narrow, has very strict regulations. The rule operates in such a way that it opens up for market-making activities while limiting proprietary trading. Volcker rule works to offer protection from investments in entities that expose the investing institutions to significant danger including private equity funds (Gambacorta and Rixtel, 2013, 18). Currently, the United States legislation limits activities of depository institutions, therefore, works in unison with Volcker rule on the restrictions on banking institutions. Volcker rule is indeed a strict piece of legislation as it exempts the transaction of certain financial instruments including agency securities while at the same time limiting various activities with other subsidiaries within the same group. In the case of Vickers proposals, a different perspective is evident from that of the rule. Ideally, Vickers proposals are broader in terms of their operative mechanisms, which include the exception of a wider array of business involved in banking from the protected entity including the elements such as the purchase of various financial instruments as well as loan purchases for secondary markets. In comparison to the Volcker rule, it emanates that Volcker proposals appear stricter as restrictions extend to intragroup and inter-firms available (Gambacorta and Rixtel, 2013, 31). Additionally, such a restriction limits the manner in which the involved financial institutions in a particular group setting or are affiliated to a certain large bank interacts with other financial institutions beyond its scope. As such, Volcker proposal entail stricter regulations in the operation of financial institutions in the international banking platform. Liikanen Report as another initiative of regulating the operations of the financial institutions during this period of economic recession, operates through a broadened scope; however, with little restriction in comparison to both Volcker rule and proposal. Liikanen report lacks any distinctive aspect between proprietary trading and market making, and, therefore, attempts establishing carve in a similar manner, without distinguishing the two (Gambacorta and Rixtel, 2013, 44). Such a particular initiative is considered less strict based on its provision of allowing a narrow set of retail banking businesses existence in the protected entity, with the allowance of another operating entity from within the other subsidiary. Indeed, the proposal also establishes an aspect of different subsidiaries coexisting with others in protected activities if they were of a similar broader group. Other than the above aspects, there exists other initiatives, all of which work to establish reforms in the banking structure for international interactions. Such initiatives include a resolution framework for failing banks, as a means of ensuring equality in international banking operations as well as the establishment of European Central Bank as the lead-banking supervisor in the international platform through the development of appropriate regulative measures. Reference Gambacorta Leonardo and Rixtel Adrian van., 2013. Structural Bank Regulation Initiatives: Approaches and Implications, Monetary and Economic Department; Bank for International Settlements Read More