V - WELFARE EFFECTS

Summary

The beneficial welfare effects of multinational banking have been as follows. First, the retail and service banking activities have permitted the spreading of the fixed costs of investment in managerial control, marketing, and other know-how over a broader base. It has lowered the average cost of these investments to consumers in the home country. It has also resulted in overall lower costs of banking to consumers in the host country. Therefore the productivity of investment has been raised in the world as a whole.

In many countries domestic banking is oligopolistic and competes mostly through non-price mechanisms, such as product differentiation and tied-in sales. Through this mechanism oligopolistic rents are dissipated in real resource expenditures and even though bank profits are not excessively high, consumers face a larger spread between lending and borrowing rates than they would under greater competition. Multinational retail and service banks entering a country typically are not members of the domestic cartel and therefore can compete on price. In doing so they bring pressures on the domestic banks to do the same and the result is a more efficient system for the benefit of consumers.

Second, the global network of multinational banks and centres has integrated the world's capital markets, assuring that savings generated anywhere in the world are more likely to be used most productively in another part of the world. In addition, by causing narrower spreads, they have encouraged some lenders who would otherwise have kept their funds idle to make them available for loans. At the same time, the lower borrowing rates have encouraged some borrowers from entering the capital market who would not have done so otherwise.

Third, the benefits from diversification on the stability of bank earnings have raised the welfare of wealth-holders.

Fourth, the growth of multinational banking has forced governments to re-examine the merit of banking regulation and taxation. As a result, the regulatory and taxation system of a number of countries has been made more efficient and made consistent with the mandates of modern technology.