Setting Regulations On The Banking Sector Finance Essay - Free Essay Example

The changing on the bank regulations affect the decision of foreign banks locations. where it is often that the Centeral bank is the sector that create regulation to the market entry of foreign banks (Clarke, 2008). As a matter of fact, choosing a location by a foreign bank is a crucial decision according to Giovana Paladino the banks need to study the different legal observation which counted as the cost of Bank FDI entry barrier (Paladino, 2007). Additionally weighting the cost and the risk by foreign bank investment is a must during their location decision led by the bank regulations which give them an opportunity to compete with other banks (Clasenssens and Horen, 2008). Policies set by the government on the banking sector and the government attitude consider as a regulation to the banks sector where it takes a very important role on their location decisions (Fontage, 2007). Moreover, seeing that the services in banks is led by human capital, banks preferred to take decision of entering a country if they got a high quality of instructions as they defined the quality by the simplistic of it associated with an educational system in high quality performance (Paladino, 2007). A considerable degree of a positive relation between the entry of the foreign banks to a country and the country legal structure liberalization (Clarke, 2008). If the instructions and the regulation are lower on the banking businesses or less concentrated on the banking market, the foreign banks prefer these countries because these elements represent the limitation of the entry barriers to these foreign banks (Fontagne, 2007). Moreover, A study have been conducted between 1978 and 2001 by Buch and Delong in 2001 and it has shown a negative relation between banks entry to countries that are likely the government involve on the instructions of banking sector (Buch and Delong 2001). furthermore The similarity of the bank regulation and the legal origins have shown an extremely higher penetration of the foreign banks to the similar countries regulations (Claessens and Horen, 2008). Accordingly, regularity conditions examine the differences of the banking markets barriers to foreign banks penetration decisions (Clarke, 2008) similarly, location decisions should be at the same rout with the regulations restorations to get the green light of the bank portfolios (Paladino, 2007).Moreover, the efficiency conditions in the banking sector led b y the economic reforms attracted and affected foreign bank location decisions (ibid). Furthermore Domestic deregulation has drove many sectors, such as advancing the technology and remove entry barriers resulted a main increase on globalization and an increase of the financial integrations, therefore a considerable number of foreign banks increased on these countries that deregulate (Claenssens et al. 2008). Setting regulations on the banking sector to foreign banks entry from developed and developing countries have a different impacts. A slightly increase of foreign banks number in Italy market was a reaction of lowering the regularity barriers on their banking system (Fontage, 2007). while opening economy and liberalizing in the financial sectors led to an increase in foreign banks claims between 1990 to 2002 to 104% in the developing countries (Herrero and Peria, 2007). However limits in instructions and control of bank activities which affect the foreign ownership and entries co uld effect in an opposite direction of the foreign banks claims (ibid). Conversely in many developing countries foreign banks have relocated themselves gradually between 1995 and 2006 due to the change in regulations (Claessens et al. 2008). However the largest 2 countries that have shown an increase in foreign banks are Serbia and Montenegro from 1 foreign bank to 29 foreign banks between 1995 and 2006 (ibid). According to Clarke a Greenfield of entries to foreign banks can show a considerable number to increase of these banks if the Greenfield had been implemented (Clarke, 2008). In China, the transaction costs has been declined by lowering the restrictions to the foreign bank investment which led them to be as the first-mover to cities and increased the number of them (He and Yeung, 2010). Moreover china deregulation has a great impacts on foreign bank decisions on their location where many banks located their main offices in Beijing and Shanghai (ibid). whereas The strong and tightened restrictions that Argentina implemented on their banking regulation system led foreign banks to withdraw and rethink of their location decisions (Barth et al, 2008). On the other hand, when China central bank set an easy regulation to foreign banks investments on their local business network the number of foreign banks increases due to the easiness of their financial policy decisions (He and Yeung, 2010). China Bank regulatory Commission mentioned that after deregulations 30 different of foreign banks had a strategic investment agreement with our local commercial banks (ibid). Furthermore according to Aurelie Fontagne German banks do not apply for an investment to a different country if the cross-border financial credits have an imposes controls to the cross-border financial credits (Fontagne, 2007). Moreover the growth of the Euromarkets was explained by the favorable regulation to the foreign banks that led them to compete in a free set prices to their reserved funds (P etrou, 2007). However according to Andreas Petrou that statistically 85% of banks operations in London was from foreign banks between 2001-2006 and they were from developing countries (Petrou, 2007). Relatively, the general wave of locations for foreign banks from developed countries into developing countries have been doubled during the period 1995-2006 (Claensses et al. 2008). As a matter of fact, presenting foreign banks from developed countries into developing countries are more often than the foreign bank from developing countries into developed countries (Petrou, 2007). However banks from developing countries are likely to locate in both developing and developed countries (ibid). As a result of increasing developed country banks in the developing countries is that banks from developing countries are less experienced than banks from developed countries to work with other regulations and restrictions in the banking sector (ibid). Part one conclusion ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ €šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.. there is a positive relationship between banks location decisions associated with deregulations. Therefore countries that deregulate their banking sector rules resulted with a higher penetration of foreign banks. furthermore developing countries have shown a higher penetration of foreign banks comparing to the developed countries. PART 3,4 AND 5 Barth, J. R., Caprio, Gerard and Levine, Ross, (2008).   Bank   Regulations   are   Changing:   For   Better   or   Worse?. World  Bank  Policy Research Working Paper Series, Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1149579 Claessens, S. , Gurcanlar, T., Mercado Sapiani, J, and Van Horen, N., (2008), Foreign Bank Presence in Developing Countries 1995-2006: Data and Trends. Mimeo. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1107295 Claessens, S. and Van Horen, N., (2008), Location Decisi ons of Foreign Banks and Institutional Competitive Advantage. De Nederlandsche Bank Working Paper, n. 172, April. Clarke J. L. (2008), An Examination of Bank Sector Deregulation on Inbound FDI: Commercial Bank Acquisitions International Review of Business Research Papers Vol. 4 No.1 January 2008 Pp.85-100 He, Canfei and Godfrey Yeung. 2010. The Locational Distribution of Foreign Banks in China: A Disaggregated Analysis. Regional Studies. https://www.informaworld.com/10.1080/00343401003614282 . (accessed 5 November 2010). . Herrero A.G.,  Martinez Peria M.S ,The mix of international banks foreign claims: Determinants and implications (2007)  Journal of Banking and Finance,  31  (6),  pp.  1613-1631. Fontagnà © A. (2007) Foreign banks investments in emerging countries: top down or bottom up strategy? ANALYSE ET POLITIQUE ECONOMIQUES (APE) https://www.master-ape.ens.fr/etudia/dipmastereng.php ( accessed 7 November 2010) Paladino, G. (2007), Location decisions of Italian banks: drivers of expansion into emerging and transition economies, in: G. BRACCHI and D. MASCIANDARO (eds.), Banche Italiane: UnIndustria al Bivio, Rome, Bancaria Editrice. Petrou Andreas, (2007). Multinational banks from developing versus developed countries: Competing in the same arena?. Journal of international management, 13(3), 376-397.