International Banking Centre Research Articles

Professional Counseling in Hong Kong

The authors provide an overview of recent developments in professional counseling as related to schools, career counseling, and community services in Hong Kong. The strategic position of counseling professionals, counseling associations, and counselor certification is discussed. The future development of counseling in Hong Kong is also considered.

Language choice in multilingual encounters in transnational workplaces

This paper is based on research conducted in banks in the international banking centre of Luxembourg. Operating in the globalised context of international banking and multilingual Luxembourg, financial institutions are an ideal focal point for investigating policy and practices in complex multilingual and transnational work spaces. Two theoretical models are the primary frameworks used to explore top-down management (explicit official language policy) and employees' practices and beliefs (implicit policy). The database for the study includes a first phase of interviews with management in 10 banks, followed by a second phase of questionnaires and focus groups with employees in three case study international banks. Taking an exclusively bottom-up perspective, this paper explores employees' complex practices through genres of communication. An analysis of employees' broad frequency patterns indicates that English is the language most frequently used alongside others. A number of languages are flexibly used in meetings, informal communication and more hybrid genres (emails and presentations). The ethnolinguistic composition of employees and transactional/relational functions of language are the two most important bottom-up pressures on language choices. However, above all, English emerges as an essential lingua franca for involving and including all employees in these contexts.

LEGAL ISSUES RELATED TO THE SHARIAH ADVISORY COUNCIL IN MALAYSIA

Malaysia has always aspired to be the hub for Islamic banking and finance. Various measures have been, and are being, carried out to promote Malaysia as an international Islamic banking and financial centre. As the backbone for this, the national Shariah Advisory Council (SAC) has been established under the auspices of the Central Bank of Malaysia Act 1958 (CBMA). Under the CBMA, the SAC has been conferred a statutory function as the authority for the ascertainment of Islamic law for the purposes of Islamic banking, as well as business and other types of Islamic financial businesses. In 2009, the CBMA 1958 was replaced and repealed. With the coming into force of the CBMA 2009, the role and functions of the SAC was reinforced and upgraded in terms of appointments of members and, most importantly, that the Shariah rulings pursuant to any reference made to the SAC by the Civil court or arbitrator concerning Shariah matters shall be binding on the Islamic financial institutions as well as on the court and any arbitrator. The issue of whether or not the SAC is the final arbiter on Islamic banking and finance disputes or, in other words, there is no longer a process of judicial review where it involves Shariah matters, will be the highlight of this paper. To what extent does the post CBMA 2009 solve the binding nature of the SAC upon the Civil courts of Malaysia as its rulings and directives are only relevant to ‘Shariah’ issues? What would be the situations if the issues of the Islamic banking and finance cases are deemed not to amount to a ‘Shariah’ issue, but are purely on banking, land matters or contractual interpretations? Has there any actual legal reform been brought about by this amendment or is it merely a cosmetic changes? If the court were to be bound by the SAC rulings, does this not usurp the independence of the judiciary which is the corner stone of the principle of separation of powers between the executive, the legislature and the judiciary? The above legal issues will be critically explored with the help of cases decided by the Malaysian Civil courts, pre and post CBMA 2009.

What factors cause foreign banks to stay in London?

The banking literature focuses extensively on the phenomenon of bank entry and pays less attention to the factors driving the continuation of banking activities in foreign markets. In this paper, we analyze this important, but overlooked, issue by constructing a unique database of foreign banks that continue operating and those that have withdrawn from arguably the world’s most international banking center—London. This new data set comprises information on 408 offices from 77 countries spanning the period from 1945 to 1999, giving us 4643 observations, of which 2795 represent offices that continue operating and 1848 that withdrew from London during this period. Our empirical work shows that the continuation of international banking activity in London is positively related to: the setup of locally integrated organizational forms at entry; the experience in the local market; and the size of local operations. Continuation of banking activities is however negatively related to the setup of organizational forms integrated into the parent bank at entry and to the geographic distance of the home-country to London. We also find that higher global economic activity increases the likelihood of international banking operations continuing in London; however, the more volatile the global economic environment, the greater the prospect of a cessation of this activity.

Hong Kong as an international banking center: present and future

The banking industry is key for Hong Kong's economy, but Hong Kong is not a big international banking center, at least not when compared with other centers belonging to large economic areas, such as New York and, to a lesser extent, Tokyo. Within Asia, Hong Kong has a larger banking sector as a whole, but the position is similar if we focus on the offshore side of it, where Singapore is growing faster than Hong Kong. Furthermore, Singapore is being more active as a banking platform for international corporates while Hong Kong remains larger in terms of banking relations. In fact, Hong Kong continues to have one of the highest concentrations of large banking institutions in the world. Such an international banking platform, together with the increasing local presence of Chinese banks, offers Hong Kong a unique opportunity to become a major banking center, probably the largest offshore center in Asia. Whether Hong Kong reaps this opportunity will very much depend on how it navigates among the opportunities that China offers in its current situation of capital controls without losing its international clout. In fact, the Hong Kong banking system should benefit from the business from China coming offshore due to capital controls (including not only renminbi [RMB] settlements but also issuance of RMB-denominated bonds). However, it should also look for non-Chinese-related banking business so as to ensure that it remains distinguishable from China's domestic banking system in the years to come.

Lessons from a collapse of a financial system

The paper draws lessons from the collapse of Iceland’s banking system in October 2008. The rapid expansion of the banking system following its privatization in the early 2000s is explained, as well as the inherent fragility due to the size of the banking system relative to the domestic economy and the central bank’s reserves, market manipulation enabling bank capital to expand rapidly and the weak and understaffed public institutions. Most of Iceland’s banking system was traditionally in state hands but was privatized and sold to politically favoured entities at the turn of the century, with laws and regulations subsequently changed to facilitate the expansion of the banking system. Political connections and the tacit support of the authorities enabled senior bank managers and key shareholders to extract significant private benefits while shifting risk to domestic and foreign taxpayers and foreign creditors. These problems were exacerbated by symptoms of what the paper terms the small country syndrome. The size of the banking sector made the central bank incapable of serving as the lender of last resort. The domestic supervisor, the central bank and the ministries in charge of economic affairs were understaffed and lacking in experience in how to manage a large financial sector. The rapid growth was also ultimately unsustainable due to high levels of leverage and a weak capital base due to both the rapid expansion of balance sheets and lending to finance investment in own shares. The episode demonstrates the importance of closely monitoring rapidly growing financial institutions and even possibly slowing growth when institutions are systemically important. One lesson to be drawn from the crisis relates to the role of politics in a financial crisis. The Icelandic authorities as a matter of policy encouraged the creation of an international banking centre. This involved the privatization and deregulation of the banking system, rules and regulations being relaxed and the neglect of financial supervision. Another lesson is that floating exchange rates can be hazardous in the presence of large capital flows. The central bank raised interest rates during the boom years in order to meet an inflation target. This created an interest rate differential with other countries that encourages a large volume of carry trades and incentivized domestic agents to borrow in foreign currency. Both conspired to create an asset price bubble, excessive currency appreciation and – counter-intuitively – high inflation. The result was that monetary policy as conducted was ineffective at curbing domestic demand. The eventual large depreciation of the currency made a large section of the economy insolvent. Finally, there are lessons about the European passport system in financial services and the common market. The Icelandic banks had the right to set up branches in the European Union by means of the passport on the explicit assumption that home regulators were exercising adequate controls. The collapse of the banks left the United Kingdom and the Netherlands with significant costs, demonstrating the inherent weakness in the passport when one member country can undercut the supervisory standards of other member countries. For the passport system to work, the home supervisor must be trustworthy. — Sigridur Benediktsdottir, Jon Danielsson and Gylfi Zoega

International Banking Centres: A Network Perspective

International banking centres have attracted renewed interest recently, as established centres compete over more dimensions while new centres emerge. Comparative studies often focus on indicators of financial activity in a particular location, but the prominence of an international banking centre also reflects cross-border linkages with banks in other locations. This feature combines these cross-border linkages into a global network and identifies important banking centres using network methods. The range of measures discussed capture the degree to which banking centres can be considered central to the international banking network.

Tax reforms and implications for international banks: The case of Cyprus

The article reviews the development of the international (offshore) banking sector in Cyprus and focuses on the effects of the transitional corporate tax regime, introduced for this sector, since the country’s admission into the European Union. The consolidated performance of international banks and data collected through semi‐structured questionnaires are examined to provide important insights into how management perceives of the new tax regime and of its impact upon the country’s attractiveness as an international banking center.

A multivariate analysis of the financial characteristics of foreign and domestic banks in the UK

For the banking sector in the EU, the UK is one of the most important countries, since over a quarter of all banking assets in the EU are held in the UK and it is the largest single international banking centre, accounting for 20% of the world's cross-border lending. The UK banking sector has traditionally been one of the most open and it is characterized by a rapidly increasing foreign bank presence. Foreign banks account for 55% of the total assets of the UK banking sector. The objective of this paper is to investigate the performance of the banking sector in the UK focusing on the performance of the domestic banks as opposed to the performance of the foreign banks operating in the UK. For this purpose, a multivariate analysis is performed to identify the existing differences between the financial characteristics of domestic and foreign banks, considering profitability, liquidity, risk and efficiency factors. The data sample covers 26 domestic and 32 foreign banks operating in the UK over the period 1998–2001.

Banks and the emergence of Hong Kong as an international financial center

Hong Kong is generally recognized as one of the premier international financial centers (IFCs) in the world. Its position has owed much to the opening of opportunity in the People's Republic of China since 1978, as well as the territory's long-standing reputation for transparency and efficiency in the provision of financial services. Less commonly recognized are the origins of Hong Kong's expertise in international banking and the prominent position that it commanded in the first few decades after the Second World War. This article seeks to clarify the development of Hong Kong as an international banking center in the first years after the War. The unique combination of laissez-faire government policy and a vibrant traditional local banking system catapulted Hong Kong to regional and global importance in the 1950s and 1960s and formed the basis for its later prominence as an IFC.

International Banking Centers, Geography, and Foreign Banks

This essay reviews much of the recent literature on international financial centers from both economics and geography and critiques the thesis of an “end of geography.” Banks have dispersed from traditional centers those activities involving frequent routine, standardized, and small‐scale transactions. At the same time, the banks have kept in the international financial centers those activities involving innovative, customized, and large‐scale transactions. In all of this, place still matters, but different places matter for different activities. Finally, foreign banks make their greatest contribution to their host center when the presence of foreign banks enhances domestic competition and innovation. The innovation that the rivalry between institutions induces makes the environment in international financial centers a turbulent one.

Bank generic strategies: does Porter's theory apply in an international banking center

This study examines banks' competitive strategies and their relationship with performance in a highly internationalized banking center, Hong Kong. The factor analysis results have, by and large, provided support to Porter's three strategy typology. Nevertheless, the empirical findings from the cluster analysis and the subsequent inter-group comparison of performances have cast doubt on Porter's stuck-in-the-middle proposition by demonstrating that banks adopting a multi-strategic approach did outperform other strategically monotonous rivals. While the stuck-in-the-middle proposition is grounded in the premise of inherent inconsistencies for pursuing more than one generic strategy simultaneously, the resource-based view and the present empirical findings hint at the feasibility for well-resourced banks to combine apparently incompatible value creating activities in a synergistic way to achieve integrated flexibility and consequently, a sustainable multi-strategic position. It is suggested that this feasibility very much depends on a bank's organizing and coordinating capabilities that are developed and refined through managerial commitment, learning and experience, as well as a careful assessment of various organizational activities and its inter-relationships within the entire business system.

The internationalization of Finnish financial service companies

The paper examines the internationalization of Finnish banks and insurance companies. Emphasis is put on the phenomena of “customer following” and “market seeking”. The results suggest that financial service companies differ from manufacturing companies in that their internationalization did not start out in countries that were culturally close to their own and then gradually move further away, as is often the case with manufacturing companies. Moreover, banks tended to move to international banking centers, whereas the internationalization patterns of insurance companies followed more closely the internationalization of manufacturing companies. The most dominant feature in the internationalization of Finnish financial service companies, however, was the fact that both banks and insurance companies, respectively, tended to follow one another.

Hong Kong as an International Banking Center After 1997

Hong Kong as an International Banking Center After 1997

Foreign Banking in the American Urban System of Financial Organization

AbstractForeign banks in the United States are major sources of investment capital and producers of financial services. Foreign banking is localized in a few metropolises. Six major international banking centers serve as American nodes in the system of global flows of capital and financial services. The asset structure, size, type, and national origins of foreign banks in these centers reveal investment motives. New York is the primary foreign banking complex. The magnitude of its foreign banking segment together with the diversity of bank sizes, nationalities, and types contributes to its distinctiveness. Its traditional role as the focal point of interaction between the securities and the domestic banking industries has been augmented by rapid expansion of foreign banks in the 1980s. In Chicago, foreign banking has grown together with its fast-growing financial markets. Foreign banking in Los Angeles and San Francisco is dominated by Japanese banks, which are mainly engaged in traditional bank lending. ...

Panama's International Banking Center: The direct employment effects

Despite the political saliency of employment, the growing scholarly literature on financial centers contains only a few cursory estimates of employment in international banking. We use simple methods to calculate the total and marginal direct employment effects of Panama's International Banking Center. The results, which appear reasonable, suggest that international banking activities are not very labor intensive and provide even fewer jobs than many observers infer from the relatively impressive asset amounts involved.

International Banking Facilities

The Federal Reserve Board permitted banking offices located in the United States to establish International Banking Facilities (IBFs) beginning in December 1981. The purpose was to allow these banking offices to conduct a deposit and loan business with foreign residents, including foreign banks, without being subject to reserve requirements or to the interest rate ceilings then in effect. IBFs are also exempt from the insurance coverage and assessments imposed by the Federal Deposit Insurance Corporation. In addition, a number of states have encouraged banking institutions to establish IBFs by granting favorable tax treatment under state or local law for IBF operations.This paper summarizes the history of the IBF proposal and discusses Federal Reserve Board regulations for IBFs and the treatment of IBFs under state and local tax law. The paper analyzes IBF activities and the use of IBFs in comparison with domestic offices and with foreign branches. The growth of IBFs is evaluated in relation to activities in other international banking centers. The paper concludes that IBFs have not turned out to be the dramatic innovation that some had predicted and that IBFs simply provide another center for booking transactions with foreign residents in a regulatory environment broadly similar to that of the Euromarket. In particular, IBFs appear to be used for a large proportion of transactions with foreign residents that were, or would otherwise have been, booked at Caribbean branches of U.S. banks. To date, the operation of IBFs has not presented a problem either for the conduct of domestic monetary policy or for bank supervision.