ISSUES THAT AFFECT THE GLOBAL BANKING INDUSTRY
Ty, Shane Lawrence
Angeles, Raymond
Dizon, Angelito
Dy, Herwin
Palanca, Keith
S13
gelo1989@yahoo.com
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 1. Biometric ATMs
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, “Money Laundering”

http://www.moneylaundering.com/