Trends in domestic and international banking By: Jon Cuesta Santiago Ayarza

Trends that have altered activity and strategy of banking Deregulation: Commercial freedom vs prudential control Financial innovation: Any change in the scale, scope and delivery of these services Globalization: Regulation in home country and the need to be following customers

Deregulation Removal of governmental and self-imposed restrictions Three phases in developed countries: 1.Lifting of quantitative controls on assets and deposit rate ceiling 2.Less specialization of business. Banks begin competing with other financial intermediaries 3.Increasing competition (more financial and non- financial intermediaries allowed to offer banking services)

Financial innovation Consequence of: Instability of the financial environment, regulation and technology development. Changes due to financial innovation: 1. From asset to liability management 2.Development of variable-rate lending 3.Introduction of cash management technology

Globalization Three strands (Canals 1997): Creation of branch network in foreign country, merger or outright takeover and finally alliance. Intensified globalization because of harmonization (GATS) and securitization. Securitization works in this way: 1.Bank unloads its assets on the securities market creating asset-backed securities (ABSs) 2. Disintermediation obtaining direct finance from capital market

Profitability Profitability, ROA and NIM dropped on average in every county Competition on asset and liability management Technology lowered barriers of entry To restore profitability many banks merged or diversificated to OBS activities

Future trends in banks Unbundle service  transparent pricing Build capital in the short term increasing spreads and fees Cross subsidization will be eroded (new entrants cherry-pick) Contract bank Increase proportion of OBS assets