Radical changes in the regulatory environments for large international banks first unleashed by Global Financial Crisis are impacting operations in novel ways, according to research by the IMF.
A new paper proposes a novel taxonomy to identify and track business model evolution for the 30 Global Systemically Important Banks (G-SIBs). Drawing from banks’ reporting.
"As global banks adapt to the new environment, including sharp declines in financial performance, the resulting shifts in financial intermediation across product lines and geographies are relevant for global financial stability. To better understand how banks themselves are adapting their
business models and adjusting lines of business that could have substantive impact on the provision of financial services, we develop a novel taxonomy of bank business models," John C Caparusso, lead author of the paper notes.
The research goes on to identify strategies along four dimensions –consolidated lines of business and geographic orientation, and the funding models and legal entity structures of international operations.
G-SIBs have adjusted their business models, especially by reducing market intensity. While G-SIBs have maintained international orientation, pressures on funding models and entity structures could affect the efficiency of capital flows through the bank channel.
An important pillar of a well-functioning global financial system is the flow and activity of cross border lending and credit of which G-SIBs play a key role. Overall, G-SIBs as a group have mostly maintained their international presence and activities, as captured by our measures of internationalization, although there has been a good deal of substitution among banks. This provides some evidence that unintended consequences of diminished international activity in credit and lending have been avoided, despite higher regulatory burdens on GSIBs and a more difficult market environment, including competition from nonbanks, and low interest rates," Caparusso adds.
Read this working paper in full: http://www.imf.org/external/pubs/cat/longres.aspx?sk=48877
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