Financial Globalization Impact on Financial Industry

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Financial Globalization

Financial Globalization Impact on Financial Industry

Globalization can be defined as the act of becoming worldwide in scope or application. Apart from this geographical application, globalization can also be defined as becoming universal. For the financial services industry, this additional implication implies both a harmonization of rules & a reduction of barriers that will allow for the free flow of capital & permit all firms to compete in all markets. Financial globalization is being driven by advances in data processing & telecommunications, liberalization of restrictions on cross-border capital flows, deregulation of domestic capital markets, & greater competition among these markets for a share of the world’s trading volume. It is growing rapidly, but mainly at the intermediary, rather than the customer, level. Its effects are felt at the customer level mostly because prices & interest rates are influenced by worldwide economic & financial conditions, rather than because direct customer access to suppliers has increased.

Subsequent the global economic crisis, economists undertook extensive research on the different patterns of lending behavior by banks & the factors that explained them, with a particular emphasis on ownership. The consequences qualified conventional knowledge about the benefits of foreign bank proprietorship. However, mobile banking services have been a great innovation with the potential of facilitating payments & savings services to millions of people. Thus, no earlier published paper had recognized an experiential association between a country’s regulatory framework & the development of mobile banking services. Valuable lessons could be learned from countries where mobile banking services have developed in very different environments.

The cross-border examination of effects of financial globalization & technological innovation project aimed to clarify what made foreign banks behave differently from domestic banks during the crisis. The project aimed to expand knowledge about the impacts of financial globalization & technological innovation on financial services.

In this phase of globalization, the key to existence & success for many financial institutions is to cultivate strategic partnerships that permit them to be competitive & offer diverse services to consumers. In inspecting the obstacles to & effect of mergers, acquisitions & diversification in the financial services industry, it’s significant to consider the keys to survival in this industry i.e. understanding the individual client’s needs & expectation & providing customer service tailored to meet customers’ needs & expectations.

Firstly, as financial & real prices are closely intertwined, it is difficult to test the hypothesis of the existence of a globalized financial market in isolation. For example, if there are different patterns of adjustment of relative consumer prices to shocks in different economies, then co-movements in financial prices should preferably be examined in real terms instead of nominal terms, so as to control for the effect of different nominal rigidities. This will be rendered complicated by the fact that inflation expectations, which determine the differential between real variables & nominal variables, are generally not observed ex-ante. Hence, tests of the law of one price are obviously based on approximations. In many cases, the test results are such that one cannot make a clear separation between the hypotheses of global financial markets on the one h& &, on the other hand, the hypothesis of global markets for goods & non-financial services.

Secondly, it is difficult, if at all possible, to identify financial products which are fully comparable in the various national financial markets. In specific, debt securities supplied by governments typically provide the basis for measuring risk-free long-term interest rates in a given currency. However, a wide array of specific factors besides general economic & financial conditions may affect government bond yields. Such factors include in particular sovereign default risk, the maturity structure of outstanding government debt & its evolution over time, the depth & liquidity of the secondary market for government bonds or the tax regime applicable to capital gains & interest receipts. These difficulties become even more challenging when considering financial instruments issued by the private sector, such as equities.

On the contrary, when the evidence points towards more co-integration amongst financial prices at short-term horizons, this may not reflect more financial market integration but the spreading of relevant information for market participants more widely & more rapidly than before. Take for example the case of the use of the telegraph & later the telephone for the transmission of financial market information in the nineteenth century, which resulted in a more rapid circulation of information across financial markets. Thus, the integration amongst financial markets may appear to increase subsequent the overview of the telegraph, since pieces of information which previously affected financial prices at different points in time are subsequently able to exert a nearly simultaneous impact on financial prices.

The innovations in communications & information technology (IT) have resulted in a decrease in diseconomies of scale related with business costs faced by financial institutions contemplating geographic development. ATM networks & banking websites have allowed efficient long-distance interactions between institutions & their customers, & consumers have become so dependent on their newfound ability to conduct borderless financial transactions on a continuous basis that businesses lose all competitiveness if they are not technologically linked. An extra driving force for financial service firm’s geographic diversification has been the proliferation of corporate combination strategies such as mergers, acquisitions, strategic alliances & outsourcing. Such consolidation strategies may improve efficiency within the industry, resulting in M&A, voluntary exit, or forced withdrawal of poorly performing firms.

The conclusion concerning the impact, advantages & disadvantages of domestic & international geographic diversification & expansion on the financial service industry is the fact that with globalization, the survival & success of many financial service firms lies in understanding & meeting the needs, desires & expectations of their customers. The most significant & continually emerging issue for financial firms to function successfully in extended global markets is their ability to efficiently serve discerning, highly sophisticated, better educated, more powerful consumers addicted to the ease & speed of technology. Financial firms that do not to realize the importance of being customer-oriented are wasting their resources & eventually will expire. Businesses that fail to identify the influence of these consumer-driven transformations will struggle to survive or cease to exist in a newly fake global financial service community that has been forever changed by deregulation.

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