Abstract
This paper reviews the characteristics of the international incursions by banks since the early 1990s, examines the implications of the US subprime meltdown crisis and ensuing credit crunch for the pursuit of international banking activities, and provides a conceptual framework to help banks assess strategic decisions regarding the scope of their international operations in the years to come. We conclude that international banks, while remaining loyal to universal banking in terms of scope of activities, should become increasingly selective regarding the international reach of each and all components of their financial services offering portfolio.
Highlights
The 1990s were a period of fast expansion and re-invention for the banking industry globally
In 1994, The Riegel-Neal Interstate Banking Act revoked the restrictions to interstate mergers among banks which had been put in place by the McFadden Act in 1927; and, in 1999, The Gramm-Leach-Bliley Act completed the elimination of regulatory constraints to securities underwriting activities by commercial banks originally set in place by The Glass-Steagall Act in 1933 (Bodie, 2005)
In the following sessions we examine the process of internationalization of universal banks pre and post the 2008 financial crisis, present a conceptual framework for decision-making by banks regarding the scope of their international operations, and conclude with a prospective view for universal banking in the years to come
Summary
The 1990s were a period of fast expansion and re-invention for the banking industry globally. The three main factors affecting the fundamentals of financial intermediation that caused this re-invention were major regulatory changes, an extraordinary acceleration in the use of digital technology, and the explosive growth of the securities markets. Very much facilitated by the above, explosive growth of the securities markets exerted downward pressure on the spreads commercial banks could earn on better known credit risks. Their response was to engage in the pursuit of, both, capital markets activities and higher margin consumer finance endeavors, often through acquisitions at home and abroad.
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