Revisiting the Concept of a Global Bank

Essentially there is no clear-cut definition for a global bank. An imperative task facing financial academic literature on an international level is establishing a theory to constitute what a truly global bank actually is. Drawing from previously mentioned research, we operate on the assumptions that (i) internationalization is a process that produces multi-national and global banks; (ii) as a result, multi-national and global banks have a physical presence in countries and regions outside their domiciled nation; (iii) in addition to physical presence, institutional size is significant to identifying institutions as global.

Above, BIS (2010) offered three notions for considering international banking. This paper focuses on the second type: financial activities conducted by local affiliates inside a foreign country. We do so for the following two reasons. First, as we will indicate below, a major aspect of our analysis centers on retail banking. Both the first and third types of banking from BIS (2010) are somewhat problematic because of issues with exchange rate vulnerability and difficulties monitoring large quantities of transactions with many individuals across borders, essentially rendering both of the other types of international banking ill-suited to a discussion on retail banking. Second, local banking activities have become increasingly important over the last three decades, particularly since the 2008 global financial crisis. Figure 2-2.1 shows local lending is on the rise as a percentage of total foreign claims on non-residents; and in total value, local lending has recovered, surpassing 2007 levels whereas cross-border lending has not². We emphasize local presence

2 Figure 2-2.1 statistics represent claims on non-residents of the bank‘s reporting country on an immediate borrower basis in millions of US dollars (and percent on right scale).

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because, as mentioned, figure 2-2.1 indicates the localization of bank credit to non-residents has been an important feature of banking in recent years³. These statistics point out at least four further reasons to justify our emphasis on local operations. First, local claims have been continuously rising as a percentage of total foreign claims for nearly 30 years, which suggests a continual localization of bank credits. Second, the overall dollar-value growth, from 1983 to 2012, is hugely different. Local credits grew 221 times their 1983 value, while cross-border credits grew just 27 times. Third, even though cross-border claims are still larger in total; they have been declining since 2007. Fourth, in the meantime, local claims have recovered, surpassing 2007 levels, and approaching 40 percent of total foreign claims. These developments suggest any growth that has taken place in global credits over the last 6 years has been almost entirely local in nature. Placing a local presence criterion into our analysis thus ensures we grasp truly global banking developments. In short, we seek to find banks that operate foreign owned subsidiaries on a wide scale, engaging local residents in local currency because that area of international banking is much more important than at any point in the last thirty years.

Moreover, the ownership of multiple major foreign subsidiaries has become quite common in recent years. We select banks for analysis below by applying statistics from The Banker‘s Top 1,000 World Banks publications. Specifically, we seek to analyze banks that share three characteristics. First, we capture geographic breadth by observing banks that are present in multiple countries and regions. Below we observe banks with a major presence in more than five countries as of 2011⁴, including both developed and developing nations.

Second, banks should measure up to a certain asset size. Thus, below we establish a threshold for total major foreign subsidiary assets in order to separate regional players from global ones⁵. Third, we seek to observe banks with relatively longer international

3 Here localization refers not only to having a physical presence in the host country, but specifically to local currency claims made to local residents.

4 Aliber (1984) highlighted The United Nations measure of ‗five or more different countries‘ as a significant level for international presence. The Banker‘s statistical information allows us to confirm we observe major subsidiaries, and thus banks with substantial global presence.

5 This paper focuses on the asset side of banking operations for two primary reasons: 1) assets provide an extremely valuable measure for bank size, and 2) below we examine retail loans as a

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experience. Therefore, we observe banks that have had at least five years‘ experience at a certain foreign subsidiary asset level by utilizing The Banker’s July 2005 publication.

Below, we outline which banks meet these characteristics.

We now apply these criteria in order to statistically identify global banks operating on the largest scale and with the widest reach. Our approach proceeds through the following three phases. First, we provide an initial list of banks with relatively high foreign presence, which also reach our asset threshold. Second, we separate the notion of multinational banking from global banking by looking specifically into the countries and regions (not just the total number) where each bank operates. Lastly, we take a bird‘s eye view of these statistics to select banks with the widest global reach and largest scale. The sections that follow from bank identification briefly describe the history of global

share of total loans, which are a common type of bank asset. Further meaningful research would do well to discuss liability developments. Asset sizes of 200 billion USD and 100 billion were selected as a means of preventing incomparability between very large banks and much smaller institutions.

Figure 2-2.1 Bank for International Settlements (BIS) Foreign Claim Statistics, 1983-2012

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000

International Claims (Cross-Border Claims plus Local Claims in Foreign Currencies) (Left Axis) (X)

Local Currency Claims on Local Residents (Left Axis) (Y)

Total Foreign Claims (Left Axis) (Z)=(X)+(Y)

(%) = Local Currency Claims on Local Residents / Total Foreign Claims (Right Axis) (%)=(Y)/(Z) Source: BIS Consolidated Banking Statistics,All Reporting Banks and All Countries

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expansion, explain how (entry method) and why (motivation) expansion has occurred, and analyze the structure of their activities.