Is Global Banking Industry Ready to Face the Heat of Another Recession - Research Paper Example

Carry out a comparative analysis of Global banks vis-à-vis foreign players: The performance of the Global banks is compared with that of the foreign banks and a study is done to analyze the trend followed by both during the recessionary period and the recovery period thereafter.
d): - Study the market dynamics in the global banking sector and the impact of Mergers and Acquisitions on the overall market structure.
e): - Study the capability of the Global banking industry in sustaining its performance during the recession: This study gains more importance in the wake of the present European crisis.

Is Global Banking Industry Ready to Face
The Heat of Another Recession
A special focus is given to the measures taken by the central bank to combat the pressures of the recession. International Monetary Fund (IMF) states that a global recession would take a slowdown in global growth to three percent or less. By this measure, four periods since 1985 qualify: 1990–1993, 1998, 2001–2002 and 2008–2009. The study concludes by answering the big question- “How globalization has affected the overall banking industry’s performance and whether the interdependence of economies has helped at times of a recessionary period?” (Busch, A.) (2009).
Hence, it becomes imperative to find measure the performance of banks operating in both developed nations like the USA and developing nations like India in terms of productivity and efficiency. Both macroeconomic and microeconomic factors are included in the findings. This would help in determining the flaws in the banking sector which assisted the recession to explode
This study helps in finding out how mergers and acquisitions help in reshaping the market structure of the Global banking sector. As per Singh’s (2005) review, “ The Global banking industry has gone rapid consolidation and restructuring since the 1990s. M&As, privatization of state-owned banks, removal of restrictions on the entry of foreign banks and deregulation of the banking industry are part of this process”. Hence, the big question is answered as to whether M&As resulted in reducing the competition and restructuring the market towards oligopoly and has this been good for the country’s economy?


Methodology and Data
The market share of each of the major banks is considered and the data for the same is sourced. In order to measure the performance of banks in both developing and developed economies, ratio analysis is carried out with return on assets (ROA) being the major indicator. A sample of 20 Global banks is taken and the weighted average performance of all 20 is calculated in the proportions of their market size. The empirical data used in this analysis is taken from the financial statements published in the annual reports of each bank operating in the fiscal period 2001-2009. The same analysis is done for the foreign banks operating in Emerging economies. The comparison of the performance of domestic banks vis-à-vis foreign banks is done by using regression analysis. The error in the findings is also highlighted.
A sensitivity analysis is carried out to find the correlation between the performances of the foreign banks vis-à-vis Global banks. This would also help in generating a year after year analysis of the trend followed by domestic and international banks.

The effect of Porter’s five forces model is the methodology used in studying the market structure of the Global banking sector. This would also help in deriving a cause-effect model and also in studying the role of mergers & acquisitions in the banking industry.
Finally, by studying the covariance of the performance of Global banks and the annual GDP growth rate (especially during the recessionary years), coupled with the inclusion of factors like mergers and acquisitions and foreign banks’ entry, a conclusion can be made as to whether the regarding the sustainability of the Global banking system during the dark period of a recession.