international banking bbf topic two.pptx

banking regulation

1. REGURATORY ENVIRONMENT

2. Regulatory Environment in International Banking a) Regulatory Environment The regulatory environment refers to the set of laws, rules, and supervisory mechanisms that govern banking operations to ensure financial stability, protect consumers, and prevent financial crises. Effective banking regulations help maintain trust, transparency, and stability in the financial system.

3. Key Objectives of Banking Regulations Financial Stability – Prevents systemic risks and bank failures. Consumer Protection – Safeguards depositors' funds from fraud and mismanagement. Risk Management – Ensures banks maintain adequate capital and liquidity. Market Discipline – Promotes fair competition and transparency. Preventing Financial Crimes – Combats money laundering and terrorism financing.

4. International Regulatory Frameworks Basel Accords (Basel I, II, III) – Global banking regulations focusing on capital adequacy, risk management, and stress testing. International Monetary Fund (IMF) – Monitors global financial stability and provides financial assistance. Financial Stability Board (FSB) – Coordinates international financial regulation. Bank for International Settlements (BIS) – Supports cooperation among central banks to enhance financial stability.

5. Role of Central Banks; Reserve Bank of Malawi (RBM) Central banks play a crucial role in regulating and stabilizing financial systems. Their functions include: Monetary Policy Implementation – Controlling inflation, interest rates, and money supply. Supervision of Commercial Banks – Ensuring compliance with banking regulations.

6. Issuance of Currency – Managing national currency supply. Foreign Exchange Management – Stabilizing currency fluctuations. Lender of Last Resort – Providing emergency funding to prevent bank failures.

7. Origin, Structure, and Its Roles in International Banking Early Trade and Banking (Medieval Period) : International banking dates back to merchant banks in the Middle Ages, which financed international trade. The Medici Bank (15th century, Italy) pioneered cross-border banking.

8. Colonial Era & Expansion (17th–19th Century) : European banks expanded globally to support colonial trade. The Bank of England (1694) and Rothschild Bank played key roles in financing international trade. Post-World War II Banking (20th Century) : Bretton Woods System (1944-1971) : Established a fixed exchange rate system and led to the rise of global financial institutions like the IMF and World Bank . Eurodollar Market (1950s) : Growth of offshore banking, where U.S. dollars were deposited in European banks.

9. Modern International Banking (21st Century) : Deregulation, digital banking, and global financial integration. Introduction of Basel Accords to regulate international banking risks.

10. Structure of International Banking Multinational Banks (MNBs) – Banks operating in multiple countries (e.g., HSBC, Citibank) .Offshore Banks – Located in tax-friendly jurisdictions (e.g., Cayman Islands, Switzerland). Correspondent Banks – Domestic banks partnering with foreign banks for international transactions. Foreign Subsidiaries & Branches – Banks establishing operations in foreign markets (e.g., Standard Bank in Malawi). International Financial Institutions – IMF, World Bank, BIS, and regional development banks.

11. Roles of International Banking Facilitating Trade & Investment – Providing loans and financial instruments for global businesses. Managing Foreign Exchange Risks – Hedging currency fluctuations through derivatives. Syndicated Loans & Project Financing – Funding large international infrastructure projects. Providing Cross-Border Payment Services – Supporting remittances, wire transfers, and digital payments. Ensuring Global Financial Stability – Compliance with global banking regulations and crisis management.

12. Why Malawi Banks Expand to Foreign Markets Market Diversification – Reducing reliance on the domestic economy. Profit Maximization – Accessing new customer bases and business opportunities. Competitive Advantage – Strengthening brand reputation and financial strength. Regulatory Incentives – Some host countries provide incentives for foreign banks.

13. Challenges for Malawi Banks Expanding Abroad Regulatory Barriers – Different banking laws in foreign markets. High Capital Requirements – Significant financial investment needed for expansion. Foreign Exchange Risks – Exposure to currency fluctuations. Competition from Global Banks – Strong international players may limit market entry. Cultural and Operational Differences – Different consumer behaviors and business practices.

14. Off-Balance Sheet Activities of Banks Definition of Off-Balance Sheet (OBS) Activities OBS activities refer to banking transactions that do not appear on a bank’s balance sheet as assets or liabilities but still create potential obligations or income. These activities are important for managing risk and increasing revenue without impacting regulatory capital requirements .

15. Types of Off-Balance Sheet Activities Loan Commitments – Agreements to lend money in the future, subject to certain conditions. Letters of Credit (LCs) – Bank guarantees for trade finance transactions. Derivatives & Hedging Instruments Swaps (currency & interest rate swaps). Options (foreign exchange options, stock options). Futures & Forwards (commodity and financial futures).

16. Securitization of Loans – Selling loan portfolios to investors (e.g., mortgage-backed securities). Guarantees & Performance Bonds – Ensuring fulfillment of contracts or obligations. Foreign Exchange & Commodity Trading – Providing forex trading and commodity hedging services.