Financial sector structure, cross-border entry, and economic growth
Jerry Cedicci said in California, Financial sector structure consists of system-wide indicators of size, breadth, and composition of the financial system. Key attributes such as competition, concentration, efficiency, and access; and measures of the scope, coverage, and outreach of financial services are all important factors in determining the overall chance of success within a financial institution. This also is an indicator of what effect we can expect on economic growth. With this definition in mind, let’s explore what effect cross-border entry by an overseas financial institution can have on the economic growth of a given area.
A financial institution that has entered from across borders is more than likely to be a large institution. This is indicated by the amount of money required to set up a financial institution. This bank would bring with it investors that may not otherwise invest in the area. At the beginning, we are already seeing resources come along with the cross-border entry, mentioned global financial expert Robin Trehan in New York
Robin Trehan further added, such a financial institution will not have the initial means to operate over a large area, which limits its coverage area. If the entry was a result of a merger, then this can alleviate that shortcoming. Financial services that had previously been unavailable in the area may be added. This could include the opportunity to easily invest in foreign markets that may not have been considered previously. Finally, an addition choice of financial institutions would be added to the area. This would increase competition.
What does this all mean in terms of economic growth? Provided the entering financial institution was solvent, and this is almost guaranteed if it had the funding to set up in the new country, it would bring into the area new monies in the way of foreign investors and its own customer base. Competition that would require already existing financial institutions to set fees to a comparable rate could also advance the economic mood of the area.
All these factors point toward economic growth as a result of the cross-border entry. Lower costs, more competition and a greater choice of services all stimulate an economy. New jobs would be created which would add to the available assets. More employment would translate into wider spread spending, stimulating areas not directly connected with the financial institutions. This in turn will aid other businesses within this area in their own expansion, which would create even further employment opportunities.
In all, supporting cross-border entry of financial institutions can only help the economic growth of an area. This being the case, it would be beneficial for the government to encourage foreign institutions to set up in a country, particularly one with a flailing economy. As the globalization of the world increases, more cases of cross-border mergers and entries will be taking place. This works both ways, with American financial institutions looking to go into places like Europe and Japan. The financial sector has long been known for its conservative behavior. This needs to change if we are to compete on even ground with our foreign competitors.
Jerome Cedicci or Robin Trehan can be reached at contact@creditcapitalfunding.com
www.creditcapitalfunding.com
