Edited by Andrew W. Mullineux and Victor Murinde
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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