Moreover, globalization will facilitate risk diversification by banks and improve the overall performance of individual economies by improving resource allocation. On the minus side, if consolidation is taken too far, it could lead to abuse of dominant market positions and moral hazard issues, such as when institutions are considered to be too big to fail. In addition, excessive involvement in foreign markets without sufficient knowledge of local economic conditions could increase the vulnerability of individual banks.
According to study (On line) which has stated that, ‘financial regulators have focused on strengthen prudential regulations and supervision in a manner that takes explicit account of the risks arising from the increasing globalization of banking’. For better risk monitoring the regulators have been a push for greater transparency that facilitates market discipline and supervision by allowing both the public and bank supervisors to better assess the risk profiles of financial institutions.
According to Miclael Pettis (On line) who has defined the economic globalization as a ‘combination of rapid technological progress, large-scale capital flows, and burgeoning international trade-has happened many times before in the last 200 years’. As definition, economic globalization is characterized by increased trade and investment liberalization (free trade), privatization of former public services and de-regulation of many former government powers. It is also associated with increasing disparities in wealth and power, both between nations and between different groups within nations, and between public and private sectors.
New forms of “private/public” partnerships are arising in the wake of these shifts in where economic and political power reside. New forms of global governance are also occurring as UN agencies, national governments, multilateral organizations such as the World Trade Organization (WTO) and networks of civil society groups (aided in their organizing by “communicative globalization”) struggle over the relationship between increasing the wealth-creating potential of more integrated global markets, and regulation of such market integration to effect more equitable wealth distribution and protect ecological sustainability.
There are many who claim that the benefits of economic globalization outweigh the costs, and that such globalization will eventually yield higher standards of living and new economic opportunities for people around the world, especially in developing nations. Empirically, the current evidence of this is weak, while there are many well documented negative effects associated with the current trend of liberalization, privatization and de-regulation. More specifically, current WTO processes and agreements favour the richer developed countries, and have failed to curb growing inequities within and between developed and developing countries
The impacts of globalisation on developing countries: The impact of the globalisation of the banking system is quite different between countries, depending on each country’s economic and institutional characteristics. However, if the economic level in a high rate and liberalisation occurred, this well supports the economy. Therefore, an open and integrated world economy is a necessary condition for globalisation but in addition it requires imperfect competition, sufficient links between producers and sufficient labour and capital mobility in the production process, to be a matter of concern.
Globalisation is a continuous process, and has been around a long time. However, the reduction in transport costs plus the increase in communications speeds mean that globalisation is feasible and profitable on a much wider and deeper scale. The drivers of globalisation are more open and liberal markets, the significant reduction in freight costs, resource optimisation and the development of alliances. Regulation of globalisation for the purpose of constraining abuse as well as efforts to offset such defects should be undertaken so long as they are specific and their outcome is measurable.
A growing rich/poor divide amongst nations will be increasingly apparent, provoking tension between gainers and losers. There is, therefore, a need to build bridges across this divide, without which globalisation could bring more problems than benefits. Globalisation generates a diverse range of opportunities for the trade of goods and services and thereby promotes their production. Consequently, expanding globalisation broadens and multiplies those opportunities, while a growing world economy expands their value.
However, when the parameters turn negative, then the converse will apply both in terms of individual industries and the stock and bond markets. Given that globalisation has always been with us, the difference between today and yesterday is that the World economy and globalisation have been expanding at an accelerating rate. The effect has been to challenge the world institutions, such as the IMF and World Trade Organisation (WTO), to keep up. Not surprisingly, each is exhibiting signs of stress in seeking to do this.
Superimposed on these institutions, there are powerful world economic groupings (such as the US Government, the EU and the Japanese Government) which can heavily influence both the scope of globalisation as well as who will be the beneficiaries. Global companies can also have sufficient weight to influence governments to negotiate in their interest. Global banking is highly significant because it plays a key part in the international integration of capital markets.
It helps to ensure that financial conditions in individual countries are strongly influenced by conditions in the world at large Furthermore, foreign entry into domestic banking markets remains a contentious issue. The proposed sale of a large domestic financial institution, possibly to a foreign acquirer, frequently results in a major controversy. Many Asian countries have yet to experience major foreign penetration of domestic banking markets, while Latin American countries have privatized many of their banks and have encouraged foreign banks to enter their domestic markets.
Because many Latin American countries opened their markets during the 1990s, and because they have experienced exchange rate and banking crises as well as severe fluctuations in their macroeconomies over this period, Latin American countries provide a good laboratory for understanding the effects of foreign bank penetration on their economies. They find that foreign banks viewed the economic problems as providing opportunities to expand, either by acquisition or by internal growth of existing subsidiaries.
Moreover, Latin America countries have adopted different strategies towards foreign banks. Argentina has became particularly open to foreign banks and Mexico is beginning to be more open, while country such as Brazil and Ecuador have been somewhat unenthusiastic to open their banking markets. Nevertheless, global banks are often an important source of new capital for devastated banks sector following the crisis. Foreign banks have been a major source of funding in the aftermath of the banking crisis in Argentina, Mexico and Brazil.
For years, when global investors considered investment opportunities in Latin America, they often began with Argentina, a country noted for its progressive government, strong economy, privatization initiatives and open markets. Argentina was also recognized for the development, growth and evolution of its real estate markets, its incentives to encourage foreign investment in real estate, and its adoption of global best practices that have been applied successfully in other real estate markets around the world.
It has forms of real estate ownership including sole proprietorships, limited liability companies, corporations and investment trusts that resemble those of some other markets. It was among the first Latin American countries to create markets for securitizing real estate equity and debt, including development of a financial trust. Unfortunately, the country’s progressive image was shattered when its economy collapsed in December 2001.
Although Argentina had accomplished much in reforming its economy and introducing new investment models and international best practices into its real estate markets, it had undermined its success by borrowing dollars on the international market to finance heavy, sustained deficit spending. During most of 2001, Argentina faced progressive deterioration in its perceived Creditworthiness as well as increased doubts about the government’s capacity to maintain its exchange rate arrangement