Concepts and indicators like (a) whether a society or a geographical area is or isn’t cash-based and (b) the spread of the systemic banking system, are often core concerns of academics, economists and technocrats. And thereof frequently encountered these to relevant legal material and constitute objectives on the political agenda of institutions. For example, the wording chosen by the European Parliament in its 2005 resolution on development and migration is illustrative, as it concluded for “[c]alls on the Commission, the Member States and national and international financial institutions to implement policies aimed at: – promoting and facilitating the transfer of migrants’ funds, ensuring that they are less costly, swifter and safer, in order to encourage migrants to use formal transfer systems – improving migrants’ access to financial services.”
Firstly, it is crucial to accept that the western-traditional banking system is neither the only financial network out there, nor always the first choice of its potential users. Secondly, governments and other political factors have excellent reasons to promote the systemic-banking concept. The so-called “too big to fail” agenda is grounded on numerous policies, besides protecting the profitability of the banking market. The above-quoted call-to-action of the European Parliament is something beyond a suggestion to the banks to introduce niche marketing strategies.
The essay’s author strongly believes that when we do a critical analysis of capital regulation, we should also consider the social and political context. Over-regulation of financial transactions increases costs and reduces the flexibility of any centralised banking system. The ever-increasing “banking bureaucracy” will exclude more and more users. We face a relationship like the Uroboros symbol; we also have to consider that over-regulation is connected with a risk of making banking inaccessible to a proportion of law-abiding users. The examination should be carried out in such a way as to be able to envision the desired adjustments to the legislative and, after a comparative analysis, understand the socio-economic conditions in those regions where the financial services are significantly different, like hawala or transactions through the WeChat platform.
Depositors are only one of the two general categories of potential users of a bank. Strictly speaking, one of the three; if we include investors and investing services. Borrowers play a crucial role too, and again, there are plenty of alternative concepts, even when we have to conclude, concepts like informal (and/or shadow) value transfer systems, which are usually grounded in the concept of microfinance. Maybe the most popular microloan service was the Alipay subsidiary of the Alibaba Group, which these days is facing serious penalties as part of a push to rein in the “unruly growth“.
In another level of the discussion, we also have to conclude that refugees’ and migrants’ challenges are still active and unsolved during the current decade. Fintech companies are more successful than ever, while conventional banks are in the midst of loan securitisations and other loan transfers as the tech giants strive to reform the global market and consumer habits. At the same time, bankruptcy, insolvency, and second-chance frameworks have been established already; without being underestimated that borrowers are always free to take their chances by attempting to issue the appropriate interim order.
To further our discussion, consumer and business creditors are characterised by cyclical behaviour. In an upturn of the market(s) and/or creditors’ optimistic beliefs, loan services are far more easily accessible, and banks are encouraged to sanction loans and fund individual activities and business developments at lower interest rates, and cheaper fees or other terms. That economic expansion turns into an increase in inflation, and that has a positive effect on the value of the loans’ collaterals which finally drives to a financial accelerator effect. During that “blowing stage”, the confidence of the expected profitability is high and further rises the prices of commercial goods. Consequently, the banking system, which is heavily exposed through the collaterals, seems solid and healthy.
Herring and Watcher explain that systematic over-lending in good times can lead banks to a “disaster myopia”. In a downturn, there is an oversupply of assets and investments, a so-called “frenzy stage” primarily caused by the preceding speculative boom in the markets. Companies may find themselves unable to generate sufficient income to cover the increased interest rate. Refinancing becomes increasingly difficult to get as lenders grow more cautious and less willing to give loans when the value of products as collateral declines.
During the attempt to present a critical explanation of what secure the healthiness of the bank’s balance sheet, we should go through the contrast of poor regulation of the banking system, which promote the abovementioned “disaster myopia“, and the over-regulation, which dismiss proportion of the population from the access to the bank network.
● @Academia
