Conducting International Banking Research

International Banking Quantitative Study
Introduction
The purpose of this quantitative study is to assess the confidence levels of members of the international banking community with respect to the sector’s ability to weather another global economic crisis like that seen from 2007-2009 following the collapse of sub-prime in the U.S. and a tidal wave of leveraged defaults across the global banking sector which only found relief through central banking intervention (Haitsma, Unalmis & de Haan, 2016; Heller, 2017). To better understand the extent to which the international banking sector is prepared for another possible global economic crisis, it is helpful to address the community directly and obtain from the horse’s mouth, so to speak, how vulnerable real life bankers feel in 2018, what with a trade war between the U.S. and China possibly turning into a hot war, and numerous countries around the world audibly voicing their desire to begin getting away from the USD as a result of too many economic sanctions flowing out of Washington in recent years.
Statement of the Problem
The problem this study aims to address is to answer whether the international banking community feels confident that it can weather another global economic crisis, and specifically whether geo-political awareness impacts that confidence level. Confidence plays a large role in how money is invested, where it is placed, and what markets will do. Everything from bonds to equities to precious metals and even blockchain is impacted by confidence. Banks must have some sense of their confidence levels should another economic crisis hit. If confidence is low, knowing that can give banks an opportunity to de-leverage and reduce risk in order to better survive an economic crisis.
Purpose of the Study
The purpose of this study is to assess the confidence of members of the international banking community with regard to whether the sector can safely handle another global economic crisis like that seen in 2007-2009 and whether geo-political awareness impacts that confidence level.
Power Analysis
The power curve is important because it tells at what point a test becomes biased as well as the probability of rejecting the null hypothesis. The curve will illustrate the power of the test in a monotonic line that increases as the probability of the rejection of the null hypothesis rises and the null hypothesis becomes more and more false. The illustration helps to show where the level of significance is (and if the curve dips below this level, it indicates some form of bias in the test).
The p-value refers to the level of significance. For example, if 95% of the students’ tests show that the students answered the questions on pigs incorrectly, it would indicate that there is a statistically significant problem with the class’s understanding of pigs. If the p value is greater than alpha (.05) there is no statistical significance. If it is less than alpha then the difference is statistically significant. Alpha is the margin of error that is permitted in at test and it is usually placed at 5%. This study aims to achieve statistical significance.
Research Question
The question posed for this study is: Can the international banking sector handle another global economic crisis like that seen from 2007-2009? The specific question is this: Does geo-political awareness impact how confident members of the international banking community feel about whether the sector can handle another global economic crisis like that seen from 2007-2009?
Null Hypothesis
Members of the international banking community with geo-political awareness do not feel confident that the sector can handle another global economic crisis like that seen from 2007-2009.
Alternative Hypothesis
Members of the international banking community with geo-political awareness do feel confident that the sector can handle another global economic crisis like that seen from 2007-2009.
Literature Review
In determining the relationship between perceptions of risk in the international banking community and how risk management is conducted, a number of researchers have posed different questions to help understand this relationship. With the Great Recession still fresh in the minds of many and the possibility of another, worse recession looming, understanding the degree to which international banks are integrated can help to develop a sense of whether defaults in one part of the world—say, Italy—will impact the entire international banking community. The study by Bouvatier and Delatte (2015) measures the extent to which international banks are integrated by examining a) “the asset side of banks to document the adjustment of their foreign claims across time,” b) bilateral positions, and c) “the current state of banking (dis)integration in different geographical areas” (p. 354). The main variable that the article examines, therefore, is international banking integration—but to measure this variable, a series of other variables needed to be measured, including countries’ GDP, geographical distance, common language, common border, whether or not they are members of the Economic Integration Agreement and the European Economic Area, along with bilateral flows and a number of other indexes, including the Chinn-Ito index and the legal structure and property rights index. Among the 14 reporting countries and 186 partner countries during the period 1999–2012, the researchers found “marked fragmentation” inside the euro area, while outside the euro area the international banking community has become even more integrated than before. In short, the integration of EU banks has reversed while the integration of banks throughout the rest of the world has progressed more dramatically than before the Great Recession.
The study is helpful for showing a divergence of trends between the euro area banks and the banks of the rest of the world. It represents a serious risk both banks inside the euro area and banks outside the euro area—but for different reasons. However, the study ends with more questions than answers. For instance, does the retrenchment in the euro area indicate that international banking has transferred to outside the euro area? If so, what tail risk does that impose on international banking should a default or collapse occur, whether in Italy or in China or in the U.S.?
The study by Bruno and Shin (2015) examines the state of international banking in light of low interest rates since the Great Recession and the “risk-taking channels” that have opened up as a result. The relationship between loose monetary policy and banking leverage adjustments have assisted in a global risk-on strategy in the international banking community. The relationship has generated a “feedback loop between increased leverage of global banks and capital flows amid currency appreciation for capital recipient economies” (Bruno & Shin, 2015, p. 119).
The variables measured by the researchers are a) the Fed Funds rate and b) the VIX aka volatility index. The relationship between these two variables indicates that as interest rates are suppressed, the VIX follows suit, which has an opposite effect on the equities market and capital flows into risk-on investments around the world.
This study is helpful in understanding the recent explosion in volatility this year. The Fed Funds rate has been increasing and under new Fed Chair Powell, the expectation is that interest rates will continue to rise. The market saw VIX soar in February and again as recently as this week, as the Fed communicates to the market its intention to continue raising rates. What this means for the international banking community and the flow of capital into risk-taking channels should be of evident concern. As the researchers conclude, “the risk-taking channel of monetary policy may yield insights into the transmission of global liquidity conditions across borders” (p. 132). After all, with USD’s role in international banking, financial implications of rising bond yields for fixed-income could be devastating for emerging markets, equities, and all manner of funds and institutions that have grown accustomed to drinking from the Fed’s punch bowl.
Kanagaretnam, Lobo, Wang and Whalen (2015) examined the variables a) risk-taking, b) religiosity, c) transparency in financial accounting, and d) timely recognition of negative news that could wreck investments if otherwise missed. The researchers found a negative relationship between religiosity and risk-taking among international banks—i.e., the more that religion played a part in the culture and lives of a nation, the less likely those banks were to suffer calamitously during the 2007-2009 economic crisis. The less religion figured into the nations’ culture, the more likely those countries’ banks were to take risks and ignore signals of impending collapse. The study is interesting because it humanizes the international banking sector in a way that is too infrequently seen. Instead of focusing on models, economic data, and so on, the researchers look at the character and instincts of the people who actually run the banks. The findings of Kanagaretnam et al. (2015) indicate that religious people and cultures are essentially risk-adverse. The banks in these countries, it is shown, fared well in comparison to the banks of countries where no moderating religious influence could be identified. The implications of this study for this paper are that risk impulses in international banking may have as much to do with the characters and cultural formation of the bankers themselves as it does with the economic and financial models that the banks employ. A measure of the extent to which religion plays a role in today’s international banking sector could be a good indicator of what to expect in the coming years, knowing that all the dominoes are lined up, so to speak, as Bouvatier and DeLatte (2015) and Bruno and Shin (2015) have shown.
The study by Weiß, Bostandzic and Neumann (2014) correlates with the study by Kanagaretnam et al. (2015) in terms of what regulates the international banking sector and, specifically, the decisions of some banks to adopt risk-on versus risk-off strategies. The variables examined by the researchers were: a) bank size, b) leverage, c) non-interest income, and d) the quality of the bank’s credit portfolio to see if these were influential factors in the rise or fall of systemic risk during periods of global financial crisis. Surprisingly, the researchers found that, no, there is no empirical evidence that supports the theory that the size of the bank, its debt, its non-interest income level or its credit portfolio have anything to do with systemic risk. What they did find contributes to the rise or fall of systemic risk was the regulatory regime of the individual banks’ nations. If regulations were lax, bank behavior was lax and more risk-on in terms of having a banking strategy. If regulations were tight, the opposite was true: banks displayed more risk aversion. This study thus, in a way, corroborates the findings of Kanagaretnam et al. (2015), who also showed that unless there is a moderating influence (which they linked with religion and its impact on a nation’s culture) banks around the world will adopt risk-on strategies that can go explosively wrong when the so-called music stops.
This study reveals the ultimate factor in the level of systemic risk at the local level—the regulatory regime. Where strict regulatory regimes exist, low levels of systemic risk are found in periods of financial crises. The question that can be drawn from this is why are regulations tighter in some countries and looser in others? By drawing on the study by Kanagaretnam et al. (2015) one could argue that the religious culture of the nation may have something to do with its regulatory framework.
The variables examined by Wong, Tsang and Kong (2015) were: a) liquidity risk, b) loan growth, c) risk transmission, and d) USD liquidity. Their research focused on liquidity risk in Honk Kong and was part of a series of studies conducted for an IMF symposium on liquidity risk in the international banking sector. The researchers found that home-country liquidity risk was less of an influential factor on risk transmission than USD liquidity. In other words, their finding corresponds with the finding of Bruno and Shin (2015) that the main factor in the stability of the international banking sector is the USD. This point should drive home an important message for the international banking community, especially as the world begins to assess the consequences of a monumental trade war between Xi and Trump, China and the U.S., with a potential hot war between the West on one side and a Sino-Russian alliance on the other. With China being the largest holder of U.S. treasuries in the world, any calculated move designed to crush the dollar can and has been anticipated by market observers. However, the real risk among international banks is USD liquidity.
Research Methods
Operational Definition of Variables
Geo-political awareness is defined as knowledge of geo-political current events and whether they are deemed “significant” to the international banking sector. Significance is determined by whether or not participants view these events as possibly impactful on the international banking community. Geo-political awareness is the Independent Variable (IV) of this study.
Confidence in the ability of the international banking community to weather another global economic crisis is defined as the belief that the sector can healthily and effectively withstand anymore shocks like that witnessed from 2007-2009. Confidence is the Dependent Variable (DV) of this study.
Constructs
The construct of geo-political awareness is not directly measurable, but it can be measured by equating the concept of geo-political awareness to actual knowledge of geo-political events. What needs to be measured is the participants’ knowledge of geo-political events, such as the state of relations between Russia and China, China and the U.S., the U.S. and Russia, Iran and the U.S., and so on; as well as concomitant global economic events, such as what the Japanese bond market is doing, what the proposed Italian deficit is, where the USD is trading against a basket of currencies, what the latest Chinese data was, and so on
Measurements
Both variables will be measured using a five-point Likert scale. Responses from participants will be generated using the survey method. The survey will be distributed to the sample via social media, with snowball sampling being the primary manner in which the sample is distributed.
Strengths/Weaknesses of Design/Methods
The strength of the quantative design is that it provides statistical evidence that can give a solid, objective sense of a particular situation—i.e., of the relationship between two variables and/or their impact on one another. The strength of the survey method of collecting data is that it provides a reasonable way for researchers to obtain data from participants.
The weakness of the quantitative design is that it does not necessarily take into consideration all impactful variables and thus does not provide a deep or exploratory view into the nature of a situation. The weakness of the survey method is that it relies upon self-reported data, which can impact the reliability and validity of the research study overall.
Threats to Validity
A study has validity when it measures what it sets out to measure. The threats to validity that this study faces, therefore, will pertain to the data collection instrument and the manner in which the data is measured. As the data will be measured using the Likert scale, there is no issue here with respect to validity. However, the collection instrument could represent an issue. If the survey does not ask the right questions to generate sufficient responses regarding the research question, the data itself may be compromised and therefore invalid.
How the Study will Address Them
The typical way to address issues pertaining to the use of a data collection instrument is to conduct a pilot study (Chenail, 2011). Therefore, this study will address the issue of validity that the survey may face by piloting the survey to a group of participants in a trial run to see whether the survey actually elicits responses that answer the research question.
Justification of Design/Methods
The use of the descriptive quantitative research design is justified for this study because it helps to answer in a statistically significant way the research question. The method is justified because it is a simple but effective way for the researcher to obtain the data required for analysis.
Alternatives?
A qualitative study using the interview method could be used to obtain a deeper understanding of how a smaller sample of members of the international banking community see geo-political awareness as a factor in the sector’s confidence regarding its ability to withstand an economic crisis. A mixed methods study could also be used, but this would not be ideal because it adds to the amount of data needing to be collected and would require more support that is not currently available for this design.
Sample
Characteristics
The sample will consist of 1000 bankers within the international banking sector of all ranks and levels within the business. Age, race, gender, ethnicity, religion and nationality will not be considered as factors for the purpose of this study but this information will be asked of participants in the survey to help provide further input into what other factors might impact the IV’s affect on the DV.
Method of Sampling
The snowball method of sampling will be used. An initial pool of participants will be obtained using the researcher’s connections on social media sites, including LinkedIn, Facebook and Twitter, which consists of over 700 contacts, more than half of which are members of the international banking community. This initial group will be sent the survey and will be requested to pass it on to one other banker they know.
Type of Data and How it will be Collected
The type of data collected will be responses to survey questions designed to measure bankers’ geo-political awareness and sense of geo-political significance to banking and their confidence levels regarding how well the banking sector can handle another economic crisis. The data will be collected using the survey method online, with participants completing a digital survey via one of the social media platforms.
Ethical Issues and Risk of Participation
Ethical issues include protecting the identity of participants and obtaining their informed consent. Consent will be assumed when the survey is completed and returned. Information about the survey will be provided at the top of the survey for the participant to read. Identifying information about the participant, such as name and the name of the bank the participant works for will not be requested or collected. This will preserve the anonymity of the participants. An internal review board will also be used to oversee the process.
How Data will be Analyzed
The parametric test is a hypothesis test that is used to obtain general information that can then be used to explain the mean of the sample. A typical parametric test is the t-test. Pearson’s correlation test is another typical parametric test. Essentially, whenever an assumption about the parameters of a sample population is utilized, the parametric test is the statistical test that the researcher will engage. This study will analyze the data using the t-test and Pearson’s correlation test.
How the Power Analysis was Conducted
Power analysis was conducted using Quick-R: “The significance level defaults to 0.05. Therefore, to calculate the significance level, given an effect size, sample size, and power, use the option ‘sig.level=NULL’” (Quick-R, 2018).
How Data will be Handled
Data will be handled by keeping all returned surveys in a digital locker that is encrypted. Only the researcher will have access to the digital locker.
Foreseeable Problems Implementing the Design
Support and budget may be two problems implementing the design. Time and scope are always obstacles in any research study, but for this study to be possible it requires budgeting time and obtaining support from bankers in the international banking community. It is possible that there is little interest from the community in responding to the survey.
Possible Prevention Methods
Connecting with individuals via social media ahead of time and getting the survey out to them early and to as many people as possible using the snowball method of sampling will help to prevent potential issues with these challenges.


References
Bouvatier, V., & Delatte, A. L. (2015). Waves of international banking integration: A tale
of regional differences. European Economic Review, 80, 354-373.
Bruno, V., & Shin, H. S. (2015). Capital flows and the risk-taking channel of monetary
policy. Journal of Monetary Economics, 71, 119-132.
Chenail, R. J. (2011). Interviewing the investigator: Strategies for addressing
instrumentation and researcher bias concerns in qualitative research. The Qualitative Report, 16(1), 255-262.
Haitsma, R., Unalmis, D., & de Haan, J. (2016). The impact of the ECB's conventional
and unconventional monetary policies on stock markets. Journal of Macroeconomics, 48, 101-116.
Heller, R. (2017). Monetary mischief and the debt trap. Cato Journal, 37(2), 247-261.
Kanagaretnam, K., Lobo, G. J., Wang, C., & Whalen, D. J. (2015). Religiosity and risk-
taking in international banking. Journal of Behavioral and Experimental Finance, 7, 42-59.
Weiß, G. N., Bostandzic, D., & Neumann, S. (2014). What factors drive systemic risk
during international financial crises?. Journal of Banking & Finance, 41, 78-96.
Wong, E., Tsang, A., & Kong, S. (2015). International Banking and Liquidity Risk
Transmission: Evidence from Hong Kong SAR. IMF Economic Review, 63(3), 515-541.