Multinational banks are now managing risk levels on a country-by-country basis with new regulations forcing financial firms to curtail their exposures to markets outside their own respective regions, Ron D'Vari, CEO of NewOak Capital, suggested in a report Monday.
"There is a clear de-globalization trend in the financial system driven by the new risks and regulatory environment," said D'Vari. "The regulators and new capital rules across the globe are pressuring leading banks to put up firewalls reducing appetite by the global banks to finance larger cross-border trades and business activities."
D'Vari's report suggests that capital markets alone are hurting banks with exposures that are outside their base currency. It's also becoming harder with more regulations popping up in different jurisdictions to put up cross-border hedges to contain risk.
Prior to the financial crisis, the banking sector favored global banks, but the crisis has changed that philosophy with experience showing global banks are now harder to manage in terms of risk.
"A significant de-globalization of the financial system would run against the globalization of economic, trade, technological, social, cultural and political areas driven by new media," said D'Vari. "Nonetheless, at least for the time being, banks will continue to compartmentalize their regional businesses until much more clear pictures of regulations and risks emerge. This certainly adds to other hindrances to the global economic growth momentum which is already slowing."