The effects of the current turbulent times on American multinational banking : An overview

Turbulent times are nothing new in the long sweep of financial and monetary history. Nonetheless, the turbulence of the current period has some unique features in terms of both its causes and its long-run effects on the financial markets. Three factors in particular would seem to set the current period apart from previous turbulent periods. First, most previous periods of global financial difficulties were associated either with wars or with acute liquidity crises in the banking system. These factors have been present to some extent in the current episode. However, in addition there has been a dramatic change in the global monetary regime that has played a major role in the present turbulence. Second, most previous crises were not accompanied by technological changes of the magnitude of the current computer/information revolution. And third, no previous crisis occurred in the context of a highly regulated banking industry attempting to adjust to much higher levels of risk, much faster paces of technological change, and much greater price and non-price competition from both traditional and non-traditional competitors in the global financial markets. These factors have radically changed the nature of multinational banking and accelerated pressures to deregulate the price fixing and entry restriction parts of the American financial regulatory system. Many of the current technological, competitive and regulatory issues facing multinational banks have their roots in the unstable and inflationary global monetary regime of the past decade. High and volatile inflation and interest rates, fluctuating currencies, and a long and deep recession have both changed and raised the risks facing multinational banks. Banks have responded over the past decade by attempting to manage this greater risk more carefully through diversification and by developing new products and services that are in demand in this riskier environment, including better and cheaper means of cash management and a richer menu of fixed and variable rate bank deposit and loan products. While the major purpose of this paper is to review how American multinational banks adapted — and are adapting — to the current turbulent times, there is a more fundamental question to consider. That is, will the financial and monetary turbulence of the past decade continue, or will the 1980s bring a return to lower and more stable inflation and interest rates, and faster economic progress?