Global Banking Development

Chapter II

Global Banking Developments

September 2009 marked the first anniversary of the global financial crisis. It was September 2008 when America’s one of the biggest investment bank, Lehman Brothers, collapsed and triggered a chain reaction of economic, financial and psychological crisis which very soon engulfed the entire globe. The year 2008-09 turned out to be a year when hard-hit by the global financial crisis, the worldwide banking industry’s future development has been sharply drawn into focus. Recognising that repairing the financial system remains a key priority, the rescue measures were undertaken globally. These have contributed to an avoidance of “worst case scenarios”, in particular by reducing the default risk of major banks. From a period of volatility, the international financial markets are normalizing in Q2 of 2009. However, the global banking sector outlook remains difficult on both the sides of the Atlantic. Due to proactive and swift action of central banks and Governments and regulatory and supervisory policy initiatives, the adverse impact of the crisis remained under control. The global economy is slated to recover during 2010, which may facilitate revival of the global banking system.

1. Introduction 2.2 In this perspective, spread over six sections this chapter gives a bird’s eye view of global macroeconomic scenario in the Section 2. Section 3 analyses the global banking trends. Outlook on the global banking trends has been provided in the Section 4. Section 5 gives a brief description about the Indian Banking System in the global context followed by conclusion in Section 6. 2. Global Macroeconomic Scenario

2.1 The global financial markets that remained under stress till Q1 of 2009, witnessed reduction in volatility and risk spreads in Q2 with rebound in activity in some market segments. Moderation in the pace of slowdown in real activity, better clarity in the rescue plans for the financial sector and on the extent of...