Key Issues For Foreign Bank In Native Country Finance Essay - Free Essay Example

Sample details Pages: 3 Words: 907 Downloads: 3 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? To understand the efficiency obtaining is a key issue for a foreign bank to break through a native country eventually. This section discusses the efficiency between home bank and exterior bank as well as the differentiation between developed and developing countries. European banking plays an important role in the world economy today. Thus, we will use some academic finance journals as information source to summarise some empirical results as well as use European banking as an example to make comparison with the other countries. George Clarks and others (2003) indicate the four main reasons that we should focus on the foreign bank entry. (i) Generally speaking, foreign are attracted to other nations with fewer restriction on entry and bank activity. (ii) The larger banks are more likely to expand abroad and have clients that need banking services overseas. (iii) Foreign banks seem to put forth competitive pressure on local bank, forcing them to low their cost o nce they arrive the expand nation. 4. Regulative restrictions and earn possibilities may affect the style of foreign bank entry and organization. According to Philip M., Yener A. and Edward Gardener (1996), the European financial service industry has developed rapidly and competition level has increased in recent years. The chief components of impact on the effects of single financial market closely connect to competition, cost efficiency and changes in market structure. European Market: Based on the Basel Accord development (from ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒâ€šÃ‚  to ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒâ€šÃ‚ ¢): Basel ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒâ€šÃ‚  mainly focus on credit risk; Basel ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒâ€šÃ‚ ¡ concludes three pillars: First pillar deals with maintenance of regulatory capital calculated by three main components, credit risk, operational risk and market risk; Second pillar provides much improvement of Basel ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒâ€šÃ‚  , it provides a framework t o deal with other risks, such as systemic risk, pension risk and strategic risk, which combines under the residual risk; Basel ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒâ€šÃ‚ ¢ includes five main changes: (i) The quality, consistency, and transparency of the capital base will be raised. (ii) The risk coverage of the capital framework will be strengthened. (iii) The Committee will introduce a leverage ratio as a supplementary measure to the BaselÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒâ€šÃ‚ ¡ risk-based framework. (iv) The Committee is introducing a series of measures to promote the build up of capital buffers in good times that can be drawn upon in periods of stress. (v) The Committee also is reviewing the need for additional capital, liquidity or other supervisory measures to reduce the externalities created by systemically important institutions. The great changes are believed to build up a standard approach for the capital requirements. Jacob A. (2004) has pointed out the establishment of Economic and Moneta ry Union (EMU) and the creation of euro capital market enhanced the progress of the competition in European banking industry. The differences between nations are important, such as size difference between banks, difference between banking categories and movement of efficiency over time. X-efficiency, is the ability to minimize cost, is considered as the most important type of efficiency. It is generally measured as its cost level compared with the best-practice bank which has the similar size. From 1990 to 1997, most European countries have substantially reduced their inefficiencies and cost levels in recent years than the earlier 1990s. Foreign bank versus Domestic bank: George R. and others (2006) conduct a survey from 35 developing economies with data on the degree of external bank has been involved among the countries. The empirical results are: Business managers rate high interest rate and access to a long term loan as lesser barriers to their operations and growth in nations having higher external participation. The coefficient on external bank participation is statistically considerable at a 5 percent level or even better. However, overseas bank participation is not important correlated with business perceptions relating access to non-bank equity. The correlation between external participation and proportion of business managers connect to the banking industry is real. The statistical significance of the coefficients on most variables is not sensitive to the variable for overseas bank participation. There is not clear information when make comparisons with small and medium corporations with massive corporations. The coefficients for small and medium companies are not important relating to interest rates and access to long term credit. The coefficient estimates show that large corporations seem to benefit more than small one from overseas participation in the banking sector. The differences are not statistically important. Developed bank versus Developing bank: Patricia H. (2004) conducts an empirical analysis by using 47 developed and developing nations as a panel set. The empirical results are: The higher knowledge stock of the nation has the higher innovation rate. The high technology imports form developed countries have a positive effect on local innovation. Human capital stock and RD expenditure have a positive and statistically considerable effect on local innovation. The infrastructure measure on electricity production is positive and momentous in all regressions. Local innovation seems to give response to the lever of IPR protection. The variable display positive coefficients in all regressions. FDI inflows are not important in the OLS regressions. To sum up, foreign entry will be wide enough to put forth competing pressure on native banks. Large foreign economies might force native banks to find another market nook that might benefit for small borrowers in the me dium term. Innovation can be explained in developing economies by market size and infrastructure; while RD expenditures, human capital and high-technology import seem to have a greater influence on developed economies. Overseas bank seem to be more interested in chasing native lending opportunities in developing countries than in developed countries. Don’t waste time! Our writers will create an original "Key Issues For Foreign Bank In Native Country Finance Essay" essay for you Create order