Services Sector Comprises Vast Groups Term Paper

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Banks have thus the role of distributing these products to their customers. Added to that in the international arena banks are dealing more with derivatives and foreign exchange, making the role of the bank far more important in the overall well being of the economy. Banks are diversifying and redefining themselves as trading, banking and service institutions. The banks are multifunctional and are known by various terms like the 'clearing bank' in UK, 'Commercial banks' and 'Investment banks' or 'Merchant banks'. Banks are thus redefining themselves to suit the wider rage of operation sand services offered. (Cranston, 1997, p. 3)

2. Globalization of banking sector

Globalization is a phenomenon that has invaded all industries and human life. The changes that have come about after the break down of the cold war and the new social interaction between nations have affected the financial sector as well. Globalization has removed restrictions for operations all over the globe to a great extent. With the available technology functions of any institution can be carried on in a global scale.

There has been a change in the outlook on banking principles and the role of banks after globalization. At the end of the Second World War, and for the decade thereafter, there was a hesitant participation in overseas banking. Banks concentrated on strengthening overseas interests especially in the neutral countries and with allies. The U.S. banks proffered credit to South American countries and Europe. American merchants benefited from the supply of credit afforded to them by their own banks in these countries. (Stern, 1951, p. 413) the changes and fast development in the economy and technology was defined in theory earlier, with some implications of the changes on the economy by the economists. The Economist Joseph a. Schumpeter theorized that new processes and policies will destroy the established methods of doing business and will bring in new methods and means. This he called the 'creative destruction' and constructive changes were predicted to occur in wave like patterns. These observations are being proved by the giant changes that are taking place in the world today. The deregulation of the international trade, transactions and the associated changes termed globalization coupled with the changes in technology have brought in vast changes in all sectors, especially the global financial services sector, and banking institutions in particular. Some of the services overlap between the banking and non-banking institutions like payments, risk taking and mutual fund for example. The methods in which these services are rendered are fast changing. Today the banking and financial services sector in general has come far from the times of Adam Smith, the functions and scope of operation of banks and other institutions are wide and vast, so much that earlier services have almost become unrecognizable. (Gup, 2003, p. 1)

The transition was not easy. Many events occurred in the 1990s that altered the structure of every nation in the globe. One was the formation of the European Union, the North American Free Trade Area, and the industrialization of the third world countries. Rapid changes in technology were one of the reasons why globalization could happen. Banking industry is hard hit by the global changes. The deregulation and the arrival of foreign competitors have created ripples in the banking sector. The competition in the industry is now intense and gaining momentum. The banking institutions were in a crisis in the nineties with rapid fall in margins at the European Union, and the rising cost of deposits and falling interest rates added to the woe. (Gup, 2003, p. 12)

Changes in banking - After Globalization

There is no remarkable change in the core banking services for banks on account of globalization. The customers still prefer the local banks. The banking service caters to mostly the local clientele. Customers prefer local banks and banks that operate from offshore or expand from other places are least preferred. Therefore banks that have ambitions to go global prefer mergers and acquisitions in the case of international banking to keep the customer. This can be noticed as happening from the eighteenth century. (Cranston, 1997, p. 459) Even today banks operate in the international arena by tie-ups with local banks. The international banking is growing with globalization, and now global banking is a reality. The international banking options have been clearly established. Global demand for the services however is still misty. Serving customers across the globe still remains elusive and filled with obstacles. Banking operations in various countries have various regulations and there are no uniform global standards. The regulations in each country are aimed at protecting and regulating the national banking system. The rules also are aimed at providing the authorities with instruments to regulate banking. Thus foreign banking is strictly regulated, with the regulation varying from country to country. Still there is no international agreements for what ought to be legal for banks on a global scale. International trade services is proposed to be the next agenda for globalization and banking services are likely to be services extended to international services. There is expected to be mergers and collaborations. Such moves however will have to be made after solving a lot of known and unknown issues that will crop up in the event of such progress. (Feldstein, 1998, pp: 245-246)

The issues in the process will not relate to the normal banking services that are available in all banks. The customer can easily avail such services from the local bank. The issues in international banking will relate to the regulations imposed on banks from the countries where they are registered or originate. The problem is where the customer desires foreign bank operations to keep the funds from the reach of his home country. In cross national transactions the policies of each country will govern the nature of services demanded by customers. (Feldstein, 1998, p. 247) the financial services industry is seen as a growth industry and the network of financial institutions is necessary for the country's economic growth. The developing countries tend to protect their banking industry for this reason. Thus though globalization is taking place in most sectors, foreign banks have stringent regulations placed on them in all countries that do not wish the banking sector going global and entry of foreign banks, which may be prohibited from entering certain line of transactions especially securities. (Feldstein, 1998, p. 249)

Ever since trade has expanded on a global scale, the market place has gained tremendous importance. The focus is on trade and issues in international trade. The Federal Reserve System ought to be geared up to meet the challenges of modernization. (Ashdown, 2002, p. 79) the International trade is the most discussed topic today. For the richer exporting countries it signifies a healthy economy. In other nation sit can mean the ability to sustain the living standards to a higher than base level. In to day's world banking creates development. Therefore the banking policies of a country will also be its effective trade policy. The financial sector controls the value of the currency and trade balance (Ashdown, 2002, p. 109)

Today the universal bank has emerged as an important institution. The relationship between its various units and the relationship between the bank with other industries, and the advisability of the banks branching out to other industries not essentially connected with banking are all relevant issues today. (Gup, 2003, p. 14) There is no immediate prognosis possible on the outcome of the expansion of the financial industry world wide and the future of banking and what roles it will play in the domestic and international arena. Boundaries are being blurred and industries that were hitherto in tight walled segments are merging. Traditional roles of the banking institution though fundamental to its existence are not by itself a definition of the modern banking service, but is one of the many diverse activities that banks are called upon to undertake today.

3. Effects of Technology and regulations on banking sectors

The most influential change that has occurred in the banking sector is the modern technology which has not only changed the way the sector operates, but also has increased the scope of operations. With that change the need for controls has resulted in legislation which is both local t the country and also with relation to foreign banks that may venture into the country on account of globalization. The aim of banking regulations today is to prevent bank crisis and financial tragedies. The liquidity of the banking sector is very important for the economy. There must be supervision and regulation by the state and prudential standards ought to be maintained in the financial sector to keep the economy alive and retain customer faith. There ought to be a system for keeping out frauds, and at the same time maintains the quality of service afforded to the customer. The banks operating costs ought to reduce with the introduction of modern…[continue]

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