Perhaps no sector than banking better illustrates both the potential benefits and perils of deeper international integration. In the wake of the global financial crisis, the globalization trend has been partially reversed, as multinational banks from developed countries—“the North”—have scaled back their international operations. On the other hand, developing country banks continued their international expansion, accounting for 60% of the new entry into foreign markets. In particular, “South–South” transactions— from developing countries to other developing countries—started growing. However, international banking is no panacea for guaranteeing financial development and stability. Recent research suggests that for designing effective policies, it is important to keep in mind differences in bank characteristics and home and host country conditions.
Countries that are open to international banking can benefit from global flows of funds, knowledge, and opportunity, but the regulatory challenges are complex. Encouraging the right type of foreign bank presence or forms of capital flows without causing distortions is challenging. Regulation and supervision of international banking is complex and should involve extensive cross-border coordination. The rise of South-South banking and greater regionalization of banking comes with benefits but also possible risks. Fintech developments may have important implications for the global banking landscape.