1) The dangers of persistently low interest rates
2) The misguidedness of a financial transactions tax
3) The rise of global banks in emerging markets
My twentieth-century mind is used to thinking of global banking as an industry dominated by banks from high-income countries. That believe is already outdated, and becoming more so. Neeltje van Horen provides some background in "The changing role of emerging-market banks."
Although many in the West are not familiar with emerging-market banks, they are by no means small. In fact, the world’s biggest bank in market value is China’s ICBC. The global top 25 includes eight emerging-market banks. Among these, three other Chinese banks (China Construction Bank, Agricultural Bank of China, and Bank of China), three Brazilian banks (Itaú Unibanco, Banco do Brasil, and Banco Bradesco) and one Russian bank (Sberbank). While excess optimism might have inflated these market values, these banks are large with respect to other measures as well. In terms of assets all these banks are in the top 75 worldwide, with all four Chinese banks in the top 20. Furthermore, in 2010 emerging-market banks as a group accounted for roughly 30% of global profits, a third of global revenues, and half of tier 1 capital."
Van Horen gives a number of reasons why growth of emerging market banks will outpace that of banks from advanced economies:
- "[L]oan-to-deposit ratios in general are very low due to the net saving position of these countries. This sheltered emerging-market banking systems to a large extent from the collapse of the interbank market and reduced the need for substantial deleveraging. This allows them now to continue lending using a stable and often growing source of deposit funding."
- "[M]ost emerging-market banks already have high capital ratios, limiting pressures for balance sheet adjustments. In addition, the new capital rules under Basel III are likely to be much less painful for these banks as they typically have less risky assets and their investment-banking business tends to be small."
- "[A] large part of the population in the emerging world is still unbanked. This provides for ample growth opportunities in these markets. In contrast, due to overall economic weakness and ongoing deleveraging among firms and households expected credit growth in advanced economies is low."
- "[T]he macroeconomic outlook in these countries is much better than that of advanced countries. Not faced with major sovereign debt problems nor large current-account deficits, most emerging markets are on pretty solid footing. Even though they will not be isolated from the problems in Europe and the United States, the dependency of these markets on the West has diminished in recent years."