Issues That Affect The Global Banking Industry

ISSUES THAT AFFECT THE GLOBAL BANKING INDUSTRY Ty, Shane Lawrence Angeles, Raymond Dizon, Angelito Dy, Herwin Palanca, Keith S13 [email protected] ABSTRACT Recession describes the reduction of a country's gross domestic product for at least 2 quarters. Bankruptcies, credit crunches, deflation, foreclosures and unemployment are effects of recession. In fact it widely affects most of the top banks here in the world. As we all know the banking industry is a highly regulated industry with detailed and focused regulators. Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere. The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the recent economic market. So how can we manage our banks’ challenges? There are several reasons for this which is why we have major and minor issues that will be tackled in our research paper. 1. INTRODUCTION The banking industry is far one of the most difficult type of business to manage. It is simply the business where stocks are hard to analyze, unstable and most of all, clients are demanding [2]. We have to realize that in the current situation of recession, the banking industry is being hit hard. This is mainly because money circles around banks. Companies would not be able to move if it wasn’t for them. However, there are also many major and as well as minor issues that are going to be discussed further. One of the major problems of banks is money laundering. It is simply the practice of engaging in financial transactions to conceal the identity, source, or destination of illegally gained money [3]. Money laundering happens in almost every country in the globe. A single scheme typically involves transferring money through several different countries so that the origin would not be tracked. In this research paper, we'll learn

exactly what money laundering is and why it is a problem in the banking industry, it will also discuss who launders money and how they do it. In our current situation, it is expected that banks will fail due to recession. Statistics say that over 200 banks will fail in United States alone [3]. The banks that are smaller are the ones that will most likely be hit by this recession since they can’t cope up with the declination of the economy. Problems will mainly be mortgage problems due to the lack of people paying for their loans. While their mortgages are not being paid, the small banks will not be able to make the money circle around. 2. MAJOR ISSUES Global Banking plays a big role in our economy. Today, banks are being used in different ways. Others store their money to the banks and eventually it will increase because of the interest, some customers use banks for business transactions and other individuals borrow money from the bank for emergency or business purposes. Banks are against from anti-money laundering. The most common types of criminals who need to launder money are drug traffickers, embezzlers, corrupt politicians and public officials, mobsters, terrorists and con artists. Drug traffickers are in serious need of good laundering systems because they deal almost exclusively in cash, which causes all sorts of logistics problems [4]. Most of the time, casino is the place where gangsters or mafias clean their money and afterwards, deposited the million amount of money they framed up as the prize claimed from the casino. Furthermore, Citibank really helped a lot from catching the small banks that are prone to bankruptcy in order to save customers account. If a bank will be planning for a closure and there are customers who have one million or higher credit from the bank, it will be responsible to return only 250,000PHP in Philippines. Usually, small banks give a big amount of interest to attract people do their banking with them and use the money for loaning in order to increase the amount of money they have. Businesses and other government establishments went to borrow money from banks and that is how the business works. Another reason

why banks like Citibank really need to exist is to prevent the Domino Effect. It is where big banks fall and as the worst result of this, small banks fall as well. According to our Speaker, Mr. Jankitmil Quintans, there should always be a big bank that could support small banks and eventually become big in the near future. Way back in 1929, united States, together with the countries around the world were hit hard by The Great Depression. Big banks fall, same goes with the small banks and businesses. Economy falls worldwide that causes suffering in different ways. We simply define recession as a crisis wherein economy falls and in effect of this, number of unemployed individual increases. One of the major causes of recession is called inflation. It refers to the unpredictable increase of price of different products in a short period of time. As price goes up, we also adjust our budget in order to buy a certain good. It also increases the production cost of different products that chains the effect to one another. Furthermore, people who do buy and sell tend to increase their price as well. Same goes with the affected retailers of different companies. Most of the consumers save money for emergency use instead of using it for leisure. Probably, as this scenario takes place, companies reduce the numbers of their employees to lessen their costs. Maybe some of us does not see the importance of banks but if we do business, we can consider them as the wall of economy. Citibank as of now is carrying a big load of responsibility and at the same time they satisfy their customers from their quality services. Spreading each of their branches in 200 countries makes them well-known as one of the prominent establishment in banking field. 3. MINOR ISSUES The minor issues experienced by our speaker are the problems with employees who fail to follow some of the rules, large amount of money from outside that are considered suspicious and the problems with ATM. Trapped ATM cards are the common problems in ATM machines nowadays. But thanks to Citibank, because they developed a technology that prevents trapped ATM card. Minor issues such as problems of the bank can be prevented in some other way. Awareness is the key for the best decision. Earning trust from the people and quality of service is a must for all banks. For the side of big banks, they should maintain their good customer relationship and the name that was build for many years. One mistake may diminish the number of people who transacts with the bank and the worst part; investors will be affected as well. For the small banks, building a good impression from the public is the most difficult thing to do and we cannot deny that this is one of the necessary factors in order to succeed. By putting ourselves into the shoe of the customer, we may have a doubt to trust a small bank due to its freshness in the banking industry.

Minor problems that occur in a bank usually landed to the newborn banks. Capital issues are one of those that can be the source of disasters. As a customer, we prefer to do transactions with big banks rather than small bank. Having high interest rates per annum compared to the big banks is a part of their strategy that will surely attract people. In return, they use it as a capital for loaning to increase their funds. But this is not an easy thing to do; small banks have a hard time to attract people especially in the urban places. We all know that geographical area is one of the factors to consider. Small banks spread in rural areas which increases the competency level of banks in a small place. This situation may lead to bankruptcy of other banks who did not meet the expected number of people to do transactions with them. Technologies and services that are not available from other banks may be an advantage that helps them to grow. They should maintain their progress because people will expect a lot from them. Good strategy from managers is a must, and improvement in the output should be seen regularly. We cannot tell what will happen tomorrow and in this case, managers should forecast in order to come up with a plan to do when disaster strikes. Poor management may lead to business closure and some newborn banks did not notice if they were on the right track or not. 4. NEW TECHNOLOGIES IN THE BANKING INDUSTRY In the past, banks are seen as individual and solo branches with no integration in them. Unlike before, banks today allow clients to conduct transactions either manually and automatic. That is, for example a client can withdraw and deposit by going to the bank. He can also deposit and withdraw through ATM’s or the internet. We are in the new age and as we all know, technology plays a big part in every aspect of businesses around the world. Especially in this recession, banking should really be involved on how to respond to it, in a way to sort of counteract this. New technologies are always being introduced that is why banks should also focus on finding these technologies to help them cope up. According to Network Magazine, there are three concerns that affect the banks dramatically. These are customer retention, cost pressure and increased competition. Technology makes it easier for any company with the right channel infrastructure and money reserves to get into banking. This has been one of the major reasons behind this kind of competition from players who do not have a banking background [1]. With these factors and concerns, global banking is now focusing on customer-centric services, cost reduction and product differentiation. We all understand how important reducing costs are, it many be one of the most important factors affecting decision making. These can

greatly increase profit margins which can then lead to more IT solutions. We, as customers want to have and are interested on business which we can benefit from. So, banks should also focus on how to differentiate its products and services. For example, there may be great discounts when someone deposits big amounts of cash. This can attract customers to deposit and as well as invest. Another concern would be customer-centric services. Dealing with the customers may be one of the most difficult part of managing a bank but once managed properly, it can ensure customer loyalty and intimacy. According to Gunit Chadha, from the Network Magazine India, "In the financial world, product superiority does not last long as it is relatively easy to copy products. So, the real strength comes from operational excellence and understanding the customer and developing rapport with him” [1]. Of course, when technologies emerge, the business should also adapt. If they could not adapt, the whole thing could break. In this point of view, information technology is very vital to the banking industry because almost they handle many transactions and money circles around it. Recently, new technology was implemented in Citibank’s ATM. It does not require you to insert your ATM card. Instead, you will swipe it and you can access your account. It prevents the cases of trapped cards. There is also an upcoming technology that Citibank has developed. It is the biometrics being implemented to the ATM wherein users can access their accounts without using their ATM cards. All you have to do is place your thumb to the sensor and it will automatically adjust the language based from the nationality and preferred language that you saved in their database. As a conclusion, banks are looking for new ways to make the banks are safer, convenient and better place for the customers. New Information Technology solutions can achieve this by integrating the different modules within the bank. This can reduce costs, increase profit and customer satisfaction and even employee motivation. 5. REFERENCES [1] Indian Express Newspapers, “The New Face of Banking,” Issue of May 2003, Business Publications Divisions, Mumbai, India, 2001. [2] Investopedia, “The Industry Handbook: The banking industry”, http://www.investopedia.com/features/industryhandbook/banking. asp [3] CNN, New Recession worry: bank Failures, http://money.cnn.com/2008/03/03/news/economy/bank_failures/in dex.htm [4] moneylanudering.com, http://www.moneylaundering.com/

“Money

Laundering”

1. Biometric ATMs