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Introduction to International Banking ( chapter 1) (Factors that…

- - - - Mostly holding deposits and making loans
      - In Greece & Rome - holy venues (Religous temples used & served as bank
    - - Colonialism - consider as the preferred system for the exploitation of lesser developed nations
    - - British banks open branches in their colonies in Australian ,Caribbean & North American
    - - The beginning of the evolution of banking and financial institutions
    - - British banks had operations in South Africa, Latin America & India
    - - European nations dominated almost 85% of the world in some form of colony,dependency or control
      - As colonialism developed - became an established corporate governance policy - governments, especially economically developed ones in Europe systematically controlled & exploited lesser developed nations
    - - Believe that profits could be made in 2 conditions - forced trade & natural resource exploitation
      - Ruling nation assumes to be superior - They supposed to help the people of the colony toward civilization
      - White colonizers held that there was an obligation to "rule subordinate, inferior & less advanced peoples"
      - The Europeans viewed that whatever their belongings (cultures, government,administrative & educational policies ) as superior and worthwhile to be transplanted.
    - - Belgian , French & German banks set up operations in Latin America , Africa & China as well in London
      - British banks (colonial bank) - only provided services outside Britain.
      - European banks undertook both domestic and overseas activities - Via M&A / establishment of subsiddiaries by the parent company in the host countries
      - European bank expansion overseas - More similar to the type of activity conducted nowadays
      - As a trademark of colonial banks - British banks specificially set up to do businesses only in their colonies.
    - - Japanese & Canadian banks also developed their global banking activities.
- - - - REASON FOR FB
        -to offer more extensive range of services
        -to take advantage on the situations not subject to local reserve requirement/ deposit insurance.
        -to compete with host country banks at the local level
        -to internationalizing bank operations
    - - REASON OB
        -low/no taxes
        -services provide for non resident clients
        -few/no FOREX controls
        -legal regimethat upholds bank secrecy
- - - - Financial Conglomerates that operate in the banking, securities and insurance sectors are among the most powerful MNCs in many countries This could increase the likelihood of regulatory capture and retard financial innovation
    - - The supervisory authorities supervise banks is quite important unless these authorities apporiately interpret and enforce the regulation governing banks the regulations themselves become meaningless
    - - Country must also decide whether to assign responsibility for bank supervision to the central bank and the conceptual literature is spit on the relative advantages and disadvantage of the central bank being a bank supervisory.
    - - Money laundering is defined as the act or a process of transforming profits earned from a criminal or illegal activity into legal profits. 3 stages of money laundering;-
        
        1. Placement- The first stage is the movement of funds from one institution
        
        2. Layering-The second stage is the movement of funds from one institution to another in order to disguise the original source and ownership of the funds
        
        3. Integration-The third and last stage is the time when the funds having been laundering are reinvested into legitimate business
    - - A key policy decision in designing the framework or structure of the bank supervisory system is whether there should be single bank supervisory authority or multiple bank supervisory
    - - it emerged in the 1960's and 1970's as a response to distortionary regulations in developed economies. Such measure included interest ceilings, restriction on the range of products supervised financial institutions could offer, capital controls and high effective tax rates.
    - - The WTO General Agreement on Trade in Services (GATS) and its Annex on The Financial Service (ANNEX) took effect in 1999 specify the general principle that govern cross boarder trade in financial services.
        
        i. Two tier mudharabah: The assets and liabilities sides of a bank’s balance sheet are fully integrated. The two tier Mudhrabah scheme does not mandate specific reserve requirement on both types of deposits.
        ii. Two Windows: Under this agreement, bank abilities are divided into two windows e.g.:- one for the demand deposits and the other for investment deposits. The choice of window is all on depositors. Demand deposits are assumed to be placed as Amanat (safekeeping) thus they are considered to belong to depositor and the bank cannot used it.
- - - - probability that a loan will repaid or there will be a default in payment and it is the potential that a borrower or counterparty will fail to meet its obligation in accordance with agreed term
    - - the exposure of a banking and financial condition to adverse movement in interest rate. It makes profits by paying a lower interest rate on its liabilities than it earns on its assets.
    - - The risk of losses in on and off balance sheet positions arising from movement in market prices or rates including interest rates, exchanges, securities price and commodity prices.
    - - Currency risk or exchange rate risk. It is a financial risk that existe=s when financial transaction is denominated in a currency other than the currency of the origin country.
    - - Political risk.Most of the foreign loan are paid in US dollars and repaid with dollar.
    - - A new established bank can be confronted with operational risk before it even decides on its first credit commitment or market situation. It is a risk of direct or indirect loss resulting from inadequate or failed internal processes
    - - It’s arises when bank has to meet its obligations as they come due without incurring losses. Two types of liquidity, funding liquidity risk and market liquidity risk