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Introduction Over the past five years the role and fundamental structure in banking and financial industry has faced significant changes. For example, in recent years many countries worldwide have experienced serious banking and/or currency (exchange rate or balance of payments) problems with high costs in terms of reduced income and increased unemployment to their own countries as well as others. Additionally, a large bank failure(s) which occurred in Japan during 1997, when Japan's central bank, the Bank of Japan (BOJ) asked the Federal Reserve Bank of New York to assist Japanese banks in raising dollar funds following the recent series of financial failures in Japan. This was followed by banking crisis in Southeast Asia, which started from 1999, and a liquidity crisis in South America during year 2001. Furthermore, the tragic events of September 11, 2001 have accelerated a slowing rate of economic growth around the world that is causing deterioration in the international banking systems. Arguably, the deterioration in international banking industry is foreseeable. Ahead of time a study by the International Monetary Fund (IMF) reported that more than 130 of the IMF¡¯s 180-plus member countries had experienced serious banking problems between 1980 and 1995, and this was even before the recent banking crises in East Asia-Korea, Thailand, Malaysia, and Indonesia-as well as in Russia . This paper will discuss some changes in the international banking (and financial) industry around the world, focusing on the events that occurred during 1998 onwards. This, of course has been triggered by various changes in global environment. Some of these changes are: reducing exposures to emerging markets into safer assets, interbank market unwinds as loans flowing to the end users, banking industry restructure and supervision, industry M&A and globalization, also more thorough discussion on trends in internet banking. Recent changes in environment In 1998, Kaufman argued that contagious systemic risk has become both more likely and more important in recent years as a result of both economic development that increases the importance and interdependence of banking and the global interdependence of countries, as well as advances in computer and telecommunications technology that permit funds to be transferred more easily, quickly, and cheaply across large distances and national boundaries and connect both banks and countries more closely . At the same time, both the financial liberalization and deregulation of bank activities and international capital controls have increased their risk exposures by permitting increased national and transnational capital flows. This was evidenced by the increase in gross international capital flows through both banks and security markets from about $50 billion annually in 1970¡¯s to nearly $1,000 billion in 1998 . Globalization These significant changes in the environment have lead to changes in ways banks and financial institutions do business. Amongst all, the American banks appear to be the most influenced by the pressure of globalization. This has affected not only the scale, but also the scope of banking business in the U.S . Additionally, the formation of the European Union, which occurred on 1st January 2002, has accelerated the pace of globalization. For instance, The Gramm-Leach-Bliley Act passed in USA on November 1999. Under this Act, securities firms are now allowed to buy banks through the medium of this financial holding structure. These financial holding companies can also now acquire insurance companies. Also, federally chartered banks are now allowed to own directly a new type of financial subsidiary that can participate in the newly authorized financial activities, except for insurance underwriting, real estate development and investment, merchant banking or other complementary activities . These have the effect of bringing more liberalized market in USA, i.e.: movement towards less separation of banking and commerce whilst inducing more competitive environment compared to other banks, especially in European countries. As a result of USA movement towards globalization, global players in other countries over the world have followed this strategy. This has created a universal banking, for example, Deutsche Bank Group¡¯s current organizational structure that was introduced two years ago, is very similar to Citigroup¡¯s organizational structure . Under this strategy, the group is organized along functional lines (rather than geographical lines) with asset management, consumer banking and investment banking as the three broad functional areas. On the one hand, the groups are evolving into more and more of financial conglomerates diversifying into differentiated products to realize economies of scope, and on the other hand some constellation of services is essential to facilitate productivity and efficiency. 1. Reduce exposures to emerging markets into safer assets The study by McGuire, published in BIS Quarterly Review in March 2004 has summarized that the interbank market in USA shrunk considerably in the third quarter of 2003. There were approximately one third of the funds built up during the expansion of the previous three quarters vanishing from bank balance sheets . Generally, this event indicated a decline of lending by European and US banks in the interbank market via their offices in the United Kingdom and offshore centers. Further indicating a move towards safer assets, banks in the reporting area continued to adjust their emerging market claim portfolios away from non-bank private sector borrowers and towards the public sector. This shift took place against a backdrop of robust debt issuance by emerging market governments and falling spreads on emerging market debt. 1.1 Private borrowers loan demand increase Interestingly, loans to non-bank borrowers rose noticeably at the same time. The rise of lending to non-bank borrowers was partially as the result of increased hedge fund activity and growth in corporate loan demands . The BIS consolidated data suggest that many banking systems have shift many of their portfolios funds. Those claims were moved away from public sector and interbank lending to the claims on the non-bank private sector. Instead of being channeled into emerging economies, funds made available through the interbank market supported an increase in lending to non-bank borrowers in the industrial countries. There are some factors that could explain this circumstance, for example corporate issuance of commercial paper in the United States, which usually declines towards the end of the year.