DEVELOPMENTS IN BANKING SYSTEM, REGULATION, RISK MANAGEMENT AND RELATIONS WITH THE REAL ECONOMY

This paper examines dynamics of changes in the global banking and financial system with relations to the real economy and management of financial institutions. Current economic environment is for some time characterised by low rates of economic growth, high debt levels and what is very important - by to few further enhancement and development opportunities. Current competiveness position in the world economy and financial system is highly concentrated toward developed large countries that will be more able to create opportunities to promote economic growth and recovery, what will be even more important in the future. It will be major research interest which measures regarding financial system will be most suitable to create economic growth and under which conditions. The most recent regulatory changes will increase operating cost for financial institutions and bring implementation uncertainties, although that was not intended. Increasing regulatory and risk management demands will also increase pressure on financial institutions and further reduce capital availability in the economy. Productivity in global financial institutions also tends to increase, but that will probably boost overall profitability and not reduce finance costs in the economy. It is very important research question how regulations will affect the sector dynamics and development of the competition. Market concentration in many countries may impact financing possibilities and entrance of new competitors in the financial services sector. Economic stagnation is major factor that impacts financial markets and banking activity, but that is also impacted by structural factors in the economy. Analysis in this paper will also discuss factors that impact banks business strategy and broader impacts of these changes. Changes in business strategies of major banks tend to reduce internal costs and change focus of their business activity. Many major international banks tend to narrow their business scope to better adjust risk and returns, comply with regulations and to increase shareholder returns. That will certainly change market conditions and availability of financial products. Possible profitability for many financial products will impact their market offer. International capital flows tend in the future to be concentrated on economies which offer manageable financial risk. How to support real economy is more becoming more important than ever. This paper discuses several actual groups of partly interconnected factors that may significantly impact future of banking and financing in relationship with the real economy.