Question

Globalisation is at work in the banking industry, where globalisation refers to an increase in competition by foreign competitors and home institutions’ doing business in the global market. To face up to the challenges of the internationalisation process banks of all sizes and from different countries should deal with long‐term issues and industry analysis as well as firm-specific strategies. Banks are no longer in the business of buying (i.e. saving) and selling (i.e. lending) money but that of offering complete financial services to the banking public. Australia’s major banks include CMA, ANZ, NAB and Westpack.

Regulation on the Australian banking industry includes the Australian Prudential Regulation Authority (APRA); the Australian Securities and Investments Commission (ASIC); the Reserve Bank of Australia (RBA); and the Australian Treasury. Explain how these regulatory authorities affect the four major banks’ strategies to take risky business such as lending to highly leveraged firms and/or investing in risky financial assets domestically and internationally. (worth 6 marks and 350-400 words required)

Answer 1

Globalization is defined as a process by which firms develop themselves to grow in a global environment taking their offerings, either good or services to the international customer space irrespective of national boundaries. Like all sectors, globalization is a trend now in banking sector as well. We have many large banks now operating at many office around the globe. This has opened a wide range of opportunities to banks to do different types of business as per the needs and requirements of the region. Along with opportunities there is also the increased competition between the international banks themselves and sometimes with the domestic banks.

But as per World Bank, 'Research shows international banking may contribute to faster growth and stability in two important ways: first, by making available much needed capital, expertise, and new technologies which make domestic financial systems more competitive; and second, by enabling risk-sharing and diversification, thereby smoothing out the effects of domestic shocks'.

Globalization also brings in its share of risks in banking sector. The recent financial crisis is a good example where globalization was blamed for the transmission of shocks leading to systemic failure across the globe. International agencies like World Bank and Basel committee have taken note of this and have come up with the Basel norms to help Banks to avoid huge risks from Globalization. Reserve Banks of Australia have enacted their set of laws taking into consideration the Basel norms to strengthen the banks and avoid undue risks. All other agencies have put similar normal to avoid undue risks