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What is an international bank? How do international banks compete?

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What is an international bank? How do international banks compete? The banking system became internationalised in the 1960s and since then it has been one of the most dramatic trends in the economy. The other two major trends in international and domestic banking are globalisation and securitisation. There are three definitions of an international bank according to Prof. Aliber. A bank may be said to be international if it uses branches or subsidiaries in foreign countries to conduct business. Secondly, a bank may be said to be international if it relates to the currency denomination of the loan or deposit independent of the location of the bank. And the last way of defining international banking is by the nationality of the customer and the bank. The definition for international banking includes location of parent banks and their banking facilities, residency of customers and currency denomination. The existence of international bank service activity is explained by the international trade theory. Banks engage in international banking activities because of the theory of comparative advantage. When a country produces a good or a service at its highest efficiency in that particular country it is said to have comparative advantage. ...read more.


This is done with sponsors which will be countries that have interest in seeing the project taking place. Project financing rest on three main items which are: that the income should be sufficient to service the debt, the asset value of the project should be sufficient to pay the capital amount the project should liquidate and that sponsors provide a long-term guarantee. * Leverage buyout loans. They are used when acquiring a commercial company. Basically the assets of company being bought will serve as collateral. In such cases, a bank will be financing the total sum of money required. The commercial bank will make an agreement to be paid prior to the shareholders. * Note issuing facilities. It could be the case when the bank is guaranteeing the payment of the capital on the assets. In addition, this contains the form of a commitment by the bank to purchase the remainder of the issue which were not bought by the public. * Loan syndication. This is when a group of banks will join forces to lend a sum of money together on common terms and conditions to one borrower. ...read more.


Also bank branches should not be very far away from the centre of the city or village and should have opening hours convenient to the customers. In order to increases in the number of customers, the bank should be aware that the customers have a lot of confidence in it. If customers' confidence begins to decrease, they can withdraw their deposits and there can be a bank failure. A method to increases confidence in the customers is by having adequate capital in order to buffer for any possible losses. In banking, technology is also an important factor in competition. It has made it possible for banks to always offer new services that previously were not there and in additional, technology has impact on how banks operate. Financial innovations are another factor that banks have to compete with. These innovations include new organization set-ups, new systems and new products and services. Product innovation arises because of constraints like competition. Internationalisation and globalisation of financial institutions and markets are two of the important areas in banking and finance. The more technology improves the existing systems in banking, the more there are financial innovations. And this helps more banks to go on international basis and improve their services and introduce new ones. ...read more.

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This has been a fair description of the international banking market but the analysis is limited. More should have been made of the benefits and drawbacks of the international banking market. At this level, more evaluation is required.

Marked by teacher Dennis Salter 04/10/2013

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