Handbook of International Banking
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Handbook of International Banking

Edited by Andrew W. Mullineux and Victor Murinde

The Handbook of International Banking provides a clearly accessible source of reference material, covering the main developments that reveal how the internationalization and globalization of banking have developed over recent decades to the present, and analyses the creation of a new global financial architecture.
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Chapter 15: International Banking Crises

Alistair Milne and Geoffrey E. Wood


Alistair Milne and Geoffrey E. Wood 1 WHAT IS AN INTERNATIONAL BANKING CRISIS? In many industries, competition has become increasingly global over the past two decades. Banking and financial services are no exception. Rapidly falling costs of transaction due to technological innovation and the removal of capital controls, in the industrial countries in the late 1970s and early 1980s and in many developing countries thereafter, have together led to a huge increase in the volume of short-term international financial flows. Core investment and commercial banking services – syndicated lending or underwriting of bond and equity issues to give just two examples – are now worldwide markets centred on the major international financial centres. Many of the world’s largest banks are looking to crossborder market penetration and cross-border acquisition as a means to achieving significant revenue growth in products such as mortgages, credit cards, personal lending and corporate banking services. On top of all this the ‘internet revolution’ is having an impact on many aspects of banking and promises to accelerate the trend towards internationalization of banking. This internationalization raises new concerns about financial stability. Might financial problems, perhaps originating in some obscure part of the globe far from the major financial centres, lead to major solvency problems among the world’s banks and threaten the functioning of the world’s financial markets? The objective of this chapter is to examine whether globalization of banking does indeed bring with it increased risks of an international banking crisis of this kind. Addressing this issue...

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