Market Access and Changing Market Conditions
Market Access and Changing Market Conditions
We will examine three important aspects of market access: the lack of access foreign banks have to certain markets, such as Japan and Korea; the opening of Europe by the end of 1992; and the changes taking place in the U.S. market.
A report by the U.S. Treasury identified several countries that have significant barriers to entry of their financial markets by foreign financial-services firms. In Japan, for instance, the regulation of interest rates gives Japanese banks an edge over foreign banks and allows them to operate on narrower profit margins abroad. In addition, operating restrictions, the close ties between Japanese banks and Japanese corporations, and lack of clarity over banking regulations make it difficult for foreign firms to operate.33
South Korea is another country that has restricted the entry of foreign banks. Foreign banks are hindered by "discriminatory restrictions on their ability to establish head offices and branches, obtain local-currency funding, raise capital, and engage in trust business."34
The key is that banks want access to different markets in order to service their clients better. However, governments may restrict access to their local markets in order to preserve the competitive position of local banks. Canada has recently lifted most of its restrictions on foreign banks, but it still does not allow foreign banks to establish branches.
The European Community has established December 31, 1992, as the date on which they hope to eliminate a series of barriers on the free flow of goods and services in order to establish one common market. An important aspect of the liberalization efforts relates to financial services. The EC has told foreign banks that they would be given reciprocal national treatment in the EC member nations. This means that foreign banks would be given the same privileges as EC banks as long as EC banks are given similar treatment in those foreign countries.35
The opening of the different country markets in the EC is having enormous consequences in Europe. Currently, each country has a myriad of laws that restrict competition by foreign banks. However, with the elimination of barriers in 1992 many of those protected banks are likely to be eliminated by competition. For example, European banks on average have half the deposits per capita of U.S. banks but 20 percent more branches. Because of the barriers, many of the European banks have remained inefficient and noncompetitive.
A wave of mergers and acquisitions is taking place in European banking, and many experts believe that Europe will soon be dominated by 15 pan-European banks, with Citicorp the only foreign bank with significant position in the market. Citicorp currently has 18,000 employees in 21 countries in Europe, and it is growing to position itself well in Europe after 1992. Japanese banks are also attempting to position themselves well, but the Europeans may end up with a significantly better position in the next decade.36 At the present time, 10 of the top 25 banks in the world are European, not counting Hongkong & Shanghai Bank. Hongkong & Shanghai Bank recently decided to move its headquarters from Hong Kong to Britain because of the uncertainty surrounding the 1997 takeover of Hong Kong by China. Although as much as 80 percent of the bank's profits come from Hong Kong, it will be considered a European bank, the fifteenth-largest in the world.37
The large U.S. market is in the process of opening up—to U.S. banks. More than 260 foreign banks are operating in the United States, and their share of the market has grown from 14 percent in 1982 to 21 percent in 1989. Japanese banks control about 25 percent of the banking market in California. Japanese banks in particular have been taking significant amounts of corporate business away from U.S. banks. They are able to lend money at much lower rates and are able to respond much more quickly and creatively than their U.S. competitors.
U.S. banks have made serious strategic errors in the past decade, but much of their comparative disadvantage is created by the banking environment in the United States. "U.S. banks are hobbled by structural impediments that include barriers to forming national networks, rigorous reporting requirements, and disadvantageous tax and accounting standards."38 Because of the U.S. aversion to bigness in banks, there are legal barriers that prohibit U.S. banks from establishing interstate branches and from offering securities and insurance products. However, these prohibitions are being challenged, and many feel that U.S. banks must be allowed the same privileges as European banks if they are to remain competitive. A major fear is that the changes going on in the financial-services industry might relegate U.S. banks to third place behind the Japanese and Europeans if significant changes are not made in the U.S. financial-services industry. However, the problems that have resulted from the deregulation of the savings and loan industry have made many in Congress question the wisdom of changing controls over commercial banks.
We will examine three important aspects of market access: the lack of access foreign banks have to certain markets, such as Japan and Korea; the opening of Europe by the end of 1992; and the changes taking place in the U.S. market.
A report by the U.S. Treasury identified several countries that have significant barriers to entry of their financial markets by foreign financial-services firms. In Japan, for instance, the regulation of interest rates gives Japanese banks an edge over foreign banks and allows them to operate on narrower profit margins abroad. In addition, operating restrictions, the close ties between Japanese banks and Japanese corporations, and lack of clarity over banking regulations make it difficult for foreign firms to operate.33
South Korea is another country that has restricted the entry of foreign banks. Foreign banks are hindered by "discriminatory restrictions on their ability to establish head offices and branches, obtain local-currency funding, raise capital, and engage in trust business."34
The key is that banks want access to different markets in order to service their clients better. However, governments may restrict access to their local markets in order to preserve the competitive position of local banks. Canada has recently lifted most of its restrictions on foreign banks, but it still does not allow foreign banks to establish branches.
The European Community has established December 31, 1992, as the date on which they hope to eliminate a series of barriers on the free flow of goods and services in order to establish one common market. An important aspect of the liberalization efforts relates to financial services. The EC has told foreign banks that they would be given reciprocal national treatment in the EC member nations. This means that foreign banks would be given the same privileges as EC banks as long as EC banks are given similar treatment in those foreign countries.35
The opening of the different country markets in the EC is having enormous consequences in Europe. Currently, each country has a myriad of laws that restrict competition by foreign banks. However, with the elimination of barriers in 1992 many of those protected banks are likely to be eliminated by competition. For example, European banks on average have half the deposits per capita of U.S. banks but 20 percent more branches. Because of the barriers, many of the European banks have remained inefficient and noncompetitive.
A wave of mergers and acquisitions is taking place in European banking, and many experts believe that Europe will soon be dominated by 15 pan-European banks, with Citicorp the only foreign bank with significant position in the market. Citicorp currently has 18,000 employees in 21 countries in Europe, and it is growing to position itself well in Europe after 1992. Japanese banks are also attempting to position themselves well, but the Europeans may end up with a significantly better position in the next decade.36 At the present time, 10 of the top 25 banks in the world are European, not counting Hongkong & Shanghai Bank. Hongkong & Shanghai Bank recently decided to move its headquarters from Hong Kong to Britain because of the uncertainty surrounding the 1997 takeover of Hong Kong by China. Although as much as 80 percent of the bank's profits come from Hong Kong, it will be considered a European bank, the fifteenth-largest in the world.37
The large U.S. market is in the process of opening up—to U.S. banks. More than 260 foreign banks are operating in the United States, and their share of the market has grown from 14 percent in 1982 to 21 percent in 1989. Japanese banks control about 25 percent of the banking market in California. Japanese banks in particular have been taking significant amounts of corporate business away from U.S. banks. They are able to lend money at much lower rates and are able to respond much more quickly and creatively than their U.S. competitors.
U.S. banks have made serious strategic errors in the past decade, but much of their comparative disadvantage is created by the banking environment in the United States. "U.S. banks are hobbled by structural impediments that include barriers to forming national networks, rigorous reporting requirements, and disadvantageous tax and accounting standards."38 Because of the U.S. aversion to bigness in banks, there are legal barriers that prohibit U.S. banks from establishing interstate branches and from offering securities and insurance products. However, these prohibitions are being challenged, and many feel that U.S. banks must be allowed the same privileges as European banks if they are to remain competitive. A major fear is that the changes going on in the financial-services industry might relegate U.S. banks to third place behind the Japanese and Europeans if significant changes are not made in the U.S. financial-services industry. However, the problems that have resulted from the deregulation of the savings and loan industry have made many in Congress question the wisdom of changing controls over commercial banks.
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