Additional funds for investment.
Each of these poses challenges for the effective supervision and regulation of the financial sector. Financial institutions around the world are consolidating at a rapid pace. The number of institutions is declining, their average size is increasing, and it is a rare week when no new bank merger or acquisition is announced.
Indeed, the last two years have witnessed the creation of the world's largest banking groups through several mergers see chart.
In the United States, the lifting of interstate banking restrictions in triggered a wave of mergers, and European integration has intensified consolidation in Europe—which the introduction of the euro in January has further encouraged.
In many emerging markets, such as Argentina, Brazil, and Korea, consolidation is also well under way as banks seek to become more efficient and more resilient with respect to shocks. Nor has consolidation been confined by national borders.
In a drive that has created powerful "national champions" in many industrial countries, financial institutions have not waited for opportunities for growth and increased profitability to be exhausted domestically before transcending national frontiers.
This process of globalization has been dominated by industrial country banking groups' exploitation of the growth potential in emerging markets, as witnessed by the expansion of Spanish banks in Latin America, German banks in Eastern Europe, and U.
At a somewhat slower pace, cross-border consolidation is also taking place between industrial countries, initially in the form of strategic alliances that offer some of the benefits of diversification without the costs of merging different business cultures.
Developments in technology, and especially the impressive growth of Internet Advantages and disadvantages of bancassurance and brokerage services, have allowed globalization to go beyond the ownership structure of financial conglomerates and to reach the retail markets.
In fact, many banks Advantages and disadvantages of bancassurance using their online operations to expand into foreign markets, avoiding the costly process of building retail brick-and-mortar networks of branches. Moreover, the emergence of alliances between major banks and telecommunications conglomerates suggests that, in the future, competition in the electronic marketplace will be fierce.
In addition, the appearance of virtual banks and the development of electronic money for the global Internet market have created the possibility for the growth of nonbank and, possibly, largely unregulated institutions that provide credit to, and collect funds from, the public.
Faster communications require faster reactions from both markets and policymakers but also quickly make information obsolete. The final vehicle for this transformation of the financial sector is the universalization of banking, which is increasingly blurring the boundary between bank and nonbank financial services.
This trend is already well developed in certain European countries—as exemplified by the widespread distribution of insurance products through bank branches, a phenomenon known as bancassurance—and presages the formation of conglomerates that provide all types of financial services.
To some extent, this irreversible trend was confirmed in the United States by the merger of Citicorp and the Travelers Group and the subsequent repeal in of the Glass-Steagall Act which restricted banks' involvement in equity financing and artificially separated investment banks from commercial banks.
Benefits and drawbacks The advantages and disadvantages of these four trends have been the subject of many articles and much debate.
On the plus side, bank mergers and acquisitions, if completed successfully, will lead to cost savings and improved profitability, benefiting both clients and shareholders. Globalization will facilitate risk diversification by banks and improve the overall performance of individual economies by improving resource allocation.
On the minus side, if consolidation is taken too far, it could lead to abuse of dominant market positions and moral hazard issues, such as when institutions are considered to be too big to fail. In addition, excessive involvement in foreign markets without sufficient knowledge of local economic conditions could increase the vulnerability of individual banks.
An important issue that has only recently been considered is the implications of these developments for prudential and supervisory policy—that is, for systemic risk and the ability of the appropriate authorities to manage it. First, how should risk be assessed and managed in this environment?
The growing use of derivatives and off-balance-sheet operations, coupled with the diversification across countries and sectors of banking activities, has quickly made traditional risk-management techniques obsolete. Second, how does one deal with a distressed bank?
Experience shows that closing a large bank can create problems because of the systemic repercussions and the potential large disruption in the real economy. In this respect, the international consolidation of the banking sector introduces an important nuance: In the euro area, would the fate of a bank holding, say, 25 percent of national deposits in its country of origin but only 1 percent of euro-area deposits compromise competition and the stability of the system and therefore merit special treatment?
If public sector intervention is appropriate, who should carry it out? International conventions provide for supervision of the worldwide operations of a bank to be the responsibility of the supervisory authorities of the bank's home country. Consider, for example, a bank domiciled in country A whose operations in country B, although small relative to the global operations of the bank, make it the dominant bank in country B.
If that bank suddenly becomes insolvent, would the bank's home-country supervisors fully take into account the massive potential disruption of activity in country B that could result from the bank's liquidation and therefore be willing to provide financial support—which would entail a wealth transfer from country A to country B?
Finally, the development of new financial techniques, the globalization of investments, and the introduction of new technologies have significantly increased the scope for, and speed of, contagion. Thus, an unexpected drying up of liquidity in a particular financial market can rapidly spread throughout the global capital market.
Again, the reaction of the supervisory authorities may be affected by globalization. Addressing risks of globalized banking In response to these challenges, financial regulators have focused on increasing transparency and on strengthening prudential regulation and supervision in a manner that takes explicit account of the risks arising from the increasing globalization of banking.
A first step to better risk monitoring has been a push for greater transparency that facilitates market discipline and supervision by allowing both the public and bank supervisors to better assess the risk profiles of financial institutions. A more fundamental reform has entailed addressing the deficiencies of the Basel Committee on Banking Supervision's capital-adequacy ratio recommendations.
The rigidity of these recommendations, compounded by the creation of new markets for credit derivatives and the unprecedented growth in loan sales and securitization, has allowed bank managers to actively manage their risks and engage in "regulatory capital arbitrage" practices.
These practices help banks reduce the average riskiness of their portfolios, as measured by the capital-adequacy ratio, and thus also lower the capital required under the Basel recommendations without a commensurate reduction in the effective risks faced by the banks.
This reduces the effectiveness of the capital-adequacy ratio as a prudential tool. The Basel Committee has proposed a number of solutions to these problems.
One proposal is for a "bucketing" approach, which would impose capital requirements based on borrowers' ratings provided by independent rating agencies.Insurance Transactions and Regulatory.
(bancassurance). In addition, we counsel clients on the advantages and disadvantages of an offshore versus a domestic captive, including the tax consequences of each structure. We also advise and structure risk retention groups for various industries. development of life insurance market , Budva, Montenegro Description Advantages Disadvantages Country where the model is most widespread Distribution agreement Bank acts as an »Bancassurance operators are diversifying and moving into a new era.
Customer Value Management: Advantages and Disadvantages. Print Reference this. Disclaimer: This work has been submitted by a student. This is not an example of the work written by our professional academic writers. Develop bancassurance agreements to target a bank’s customer base. Un-tapped markets such as HNWI and Takaful (Islamic. The growth of bancassurance has been one of the most significant movements across the European financial services industry over the last three decades. specialisation may offer the benefit of a more lucid identification of the advantages and disadvantages associated with each product, through dissemination of the processes of ‘assessment. Doing Business in South Korea Exchange rate fluctuations offer advantages to the UK in the short term: The FSCMA could open up new opportunities for cross-selling to bank customers, including further development of Bancassurance and capital market businesses.
Three bancassurance models; their characteristics, advantages, disadvantages and the countries where these models are wide spread have been summarized in the table 3. Objectives of the Study To make the study more scientific and systematic the researcher has made following objectives: To understand the concepts and models of bancassurance.
Customer Value Management: Advantages and Disadvantages. Print Reference this. Disclaimer: This work has been submitted by a student. This is not an example of the work written by our professional academic writers.
Develop bancassurance agreements to target a bank’s customer base. Un-tapped markets such as HNWI and Takaful (Islamic. A Health insurance policy is a contract between the insurance company and the policyholder, wherein the insurer pays for the medical expenses incurred by the life timberdesignmag.com insurer will either provide a reimbursement for your medical expenses or ensure you are eligible for cashless treatment for injuries or illnesses covered under the policy at one of the network hospitals.
As a matter of fact, tax advantages related to life insurance products offered in some countries (e.g. France) have largely contributed to the development of bancassurance. On the other hand, regulation can also be seen as a limit since its increasing may result in .