Globalization and Contemporary Banking: On the Impact of New Technology

Abstract

Technological innovation has contributed to recent changes in the conduct and character of banking, but its impact has been contradictory. First, money-dealing transactions have become cheaper, but investment costs have increased and a broader range of services had to be provided. The cost efficiency of banks has not improved. Second, banks have developed computationally intensive, ‘arms length’ techniques to assess creditworthiness and manage risk. Thus, they have been able to generate new revenue streams from lending to individuals and from fees for money market mediation. This shift has signalled a decline of ‘relational’ banking. Third, new technology and related practices have facilitated the entry of foreign banks into developing countries, where they can exploit ‘arms length’, technologically demanding niches in domestic markets. This has not improved the efficiency of host banking systems, nor increased the availability of credit to the productive sector.