Commercial and investment banking - Essay Example

Commercial and investment banking By Challenges of internationalization of banking s One of the latest trends experienced in the banking industry is the internationalization of banking institutions. As much as it comes with a variety of advantages, it has several disadvantages worth noting. To start with, there is increased competition in the local banking industry thus posing a challenge to locally based banks. Small local customers previously served by local investment banks are now being targeted by huge international banks in search of new clientele in the global market (Crocket 2001, p.1). Moreover, the cost of gathering information is becoming increasingly high coupled with the cost of regulation.

Most banks operating on the international arena are facing extremely high operating cost affecting their profitability negatively (the economist 2015, p.1). It is the duty of the headquarters to monitor the operations of all its subsidiaries and comply with regulation requirement of the host country when setting up subsidiaries. The more subsidiaries a bank have the higher the cost of monitoring and regulation. Further, just like establishing any other business unit initial capital is required and at times may be too high.

Different countries have different regulations concerning the initial capital investment required before a new firm can be granted operation permission. As such, international banking institutions are at risk of high initial capital investment especially where a huge amount is required to act as security for the customers’ deposits in case of liquidation. Furthermore, change in laws in a country may adversely affect the operations of international banks in a host country. There is increasing cost of compliance in the international market placing small banks at higher risk of losing its assets to the host government (Elliott 2015, p.

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