Globalization and Contemporary Banking: On the Impact of New Technology

Technological innovation has contributed to recent changes inthe conduct and character of banking, but its impact has beencontradictory. First, money-dealing transactions have becomecheaper, but investment costs have increased and a broader rangeof services had to be provided. The cost efficiency of bankshas not improved. Second, banks have developed computationallyintensive, ‘arms length’ techniques to assess creditworthinessand manage risk. Thus, they have been able to generate new revenuestreams from lending to individuals and from fees for moneymarket mediation. This shift has signalled a decline of ‘relational’banking. Third, new technology and related practices have facilitatedthe entry of foreign banks into developing countries, wherethey can exploit ‘arms length’, technologicallydemanding niches in domestic markets. This has not improvedthe efficiency of host banking systems, nor increased the availabilityof credit to the productive sector.