Banking Globalization and Global Imbalances Essay

Banking Globalization and Global Imbalances - Essay Example As such, in order for a bank to operate profitably in the foreign market, it must be able to gain or realize gains that are not available to local competitors. These gains to be realized when a bank is operating in foreign financial sector usually stem from; geographical risk diversification, competitive and comparative advantage factors and efficiencies that are not attained when operating exclusively in the local markets. On comparative advantages, better intermediation technologies, superior management quality, and innovative products are among the factors frequently cited by both the internalization theory and the electric theory of multinational corporations (De Haas & Lelyveld 2010). However, these factors are not permanent in the case of banks diversifying internationally based on the assumption that financial firms usually have intangible assets that cannot be imitated and management quality is easily transferable. Information is a crucial comparative advantage for a bank to operate in abroad markets. Organizations prefer doing business with a less number of banks to ensure that their sensitive financial information is not revealed to too many financial firms. As such, once a bank establishes a relationship with an organization, it has a competitive advantage in serving the firm’s operations in the foreign markets. The increased importance of information in the banking sector has resulted to the shift from cross-border borrowing and lending towards the foreign banks’ local operations in the emerging countries (Mariotti & Piscitello, 2010). One of the best ways of exploiting comparative advantages arising from the private information in foreign markets is following the client. This means that banks usually expand in the countries where their client choose to invest so that they can be able to offer them services that they need.