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DOI: http://dx.doi.org/10.20534/AJH-16-9.10-64-71
Ignatchenko Natalia Mykolaiyvna, degree seeking applicant of the world economy and international economic relations Institute of International Relations before the Taras Shevchenko Kyiv National University E-mail: [email protected]
Development of investment banking activity in the context of cyclicality of the world economy
Abstract: The article is dedicated to development of theoretical and methodological basis for research of investment banking activity and working out of scientific and practical recommendations as to development of international banking activity in the context of cyclicality of the world economy. Approaches for improvement ofbanking activity regulation in conditions of the crises are justified; mechanism for integration of national banking systems into the world financial system is developed; scientific and methodical approach to formation of pricing indicators of interbank credit market is proposed.
Keywords: investment banking activity, transnationalism ofbanking activity, transformation ofbanking systems, the world financial system, the interbank securities market, cyclicality of the world economy.
Strengthening of the world economic globaliza- activity regulation and development of anti-crises
tion process leads to quality transformation of the nature and structure of development of investment banking activity. A powerful factor for expanding the scale of investment banking activity is removal of legislative restrictions as to admission of foreign capital to the national markets of banking services. Besides, fundamental change of international economic relations is observed, and first of all, the key structure, which provides growth of globalization itself — the international banking activity.
Significant influence at development of investment banking activity have permanent crises phenomena in the world economics, which is justified
with the fact of bankruptcy during the period of
crises of the largest banking institutions both — in well-developed countries and in the developing countries. National regulatory authorities take significant efforts to overcome destructive consequences of the world economic crises, first of all at the cost of support of banking sector liquidity. Further development of investment banking activity significantly depends on the speed and result of overcoming the first phenomena, review of mechanisms of banking
programs, directed at providing financial stability, reduction of general economic losses of national economic systems.
Works of such scientists as T. Andersen, G. Brian, Kh.Grubell, F. Derek, O. Donnel, Kh.Douglas, P. Rose, S. Haimer, and others are dedicated to research of specific features of the essence and perspectives of development of investment banking activity in the context of cyclicality of the world economy development, as well as Ukrainian scientists Yu.Vashchenko, V. Geyets, D. Lukyanenko, Yu.Makogon, I.Rogach, A. Rumiantsev, S. Tsyganov, S. Yakubovskiy and others.
In connection with the necessity to establish strategic approaches of further development of international banking system consideration of such phenomenon is feasible as cyclicality, which will contribute to deeper understanding of the nature and possible orientation of further evolution of the system under consideration and, as the result, larger justification in the choice of approaches and tools of influence at organization of investment banking activity.
Phenomena of cyclicality are detected by the present moment in various areas. Among the detected cyclical regularities of social development a special place belongs to economic cycles of different length. It is worth mentioning that cycles are not repeated in full, more often distances between the extreme values changes, which gives the basis to researchers to assume existence of hierarchy of wavelike cycles with various periods. On the whole, according to the data of The Fund of economic cycles (USA), there are 75 types of cycles known of general business activity, having duration from 16 to 60 years, as well as 23 types of cycles of wavelike nature from 35 to 108 years [8, P. 33].
The essence of notion «cyclicality» is in the integral development of the national economics and the world economy, which assumes changes of development stages of the economics from growth up to crises. Cyclical development of economics is characterized with growth of production and non-production area during the period, which ends with decrease and crises in the economics. Periodical turn of the cycle phases in the world economy leads to crises — the main phase of the economic cycle.
Development of investment banking activity like any other economic activity also has cyclical nature. For the deeper understanding of cyclical phenomena in the economics it is necessary to consider the basic stages of evolution ofthe economic theory ofcyclicality in view of the economic thought development.
During the period from the beginning of the XVIII century up to the middle of the 30-ies of the XX century, concepts of economic cycles prevailed, under which crises in the economics either do not arise at all in the market conditions, or arise at random, and the market mechanism of self-regulation is able to remove them itself.
So, representatives of classic school first considered crises as accidental and fast and transitory phenomena. In the works ofA. Smith, D. Ricardo, J. Mill and A. Marshall, if the phenomenon of cycle was observed at all, it was insignificant, because presence of serious economic fluctuations contradicted the Say's law. Pursuant to the law all products, produced in the market economics, will be realized on condition that the structure of production will conform to the
structure of the demand. This admits that in conditions of economic freedom lack of accumulative demand, i. e. crises of overproduction, is impossible. This way, in conditions of economic liberalism with observation of state non-interference crises and depressions are impossible in principle [9].
Unlike the mentioned classics, G. Maltus and S. Sis-mondi have realized the imminence of crises and have connected them with the insufficient comprehensive demand for the goods produced. Therewith G. Maltus considered over accumulation of capital as the source of insufficient demand, and D. Sismondi — under consumption ofworkers and capitalists: the first — as the result of slower growth of income as compared to growth of mass of commodities, the other — as the result of reduction of consumption for the sake of accumulation of capital. However both scientists have underestimated the investment constituent of accumulative demand [12, P. 442].
Representatives of Marxist approaches tried to create the economically justified crises theory. K. Marx was the first who justified the principle of crises consideration as deviation from the balance from the scientific point of view [10]. His over production crises are the element of cyclical development of capitalist economics and the consequence of breaking of macroeconomic balance. Sharply criticizing all who shared the provisions of Say about impossibility of economic crises, he also considered inacceptable interpreting economic crises as under consumption crises, which flowed out of the works of Maltus, Sismondi, Prudon. In the «Capital» Marx has distinguished four phases of the cycle for the first time, he has given characteristics to them and justified the reasons for crises arising. In his opinion, the reason for cyclicality of capitalistic production is the nature of capitalism itself, which expresses itself in the key contradiction of commodities production — between the social nature of production, objectively reasoned with social allocation of labor, and the private capitalistic form of appropriation of its results. In connection with this Marx has come to the conclusion as to imminence of over production crises.
It is necessary to mention the fact that, notwithstanding many valuable ideas of K. Marx in
the studies about crises, he has no distinctly formulated theory of crises, therefore among the Marxists there are some inconsistencies in interpretation of his ideas. In connection with the fact that the consumer goods produced in the stage of production represent industrial capital in its commodities form, and industrial capital grows faster than the purchasing demand of the population, this leads to relative over accumulation of the industrial capital, which is reflected at the whole economics, creating its cyclical (wavelike) movement.
Another interpretation of Marx's theory of crises, link the fundamental causes of crises with the law of growth of organic construction of capital, opened by K. Marx. To the extent of technical progress the organic construction of capital rises, but the outrunning growth of capital as compared to the variable is, together with this, the factor of reduction of the profit rate, which in the final summary leads to failure in the turnover of the capital, the growing need in working capital, the demand for credit funds etc. [16].
The concept of industrial cycle of M. Tugan-Ba-ranovskiy, within the framework of which logic of the cycle was explained by the mechanism of forming investments to the fixed capital, connection of their dynamics with accumulation of capital and influence of this dynamics at the value of loan interest, as well as the idea about natural boundaries of expanding production, which are set from the side of solvent demand, have influenced the development of the world economic thought on the whole. A famous scientist M. Kondratiev, having studied and processed great empirical material under the methods of mathematical regression, which reflects social and economic development of Germany, France, Britain and the USA from the end of the XVIII century till the 20-ies of the XX century, and having compared commodities prices indices, securities rates, salaries levels, rates of external trade turnover etc., has come to the conclusion about presence in the dynamics of social and economic processes of regular large cycles of environment, each of which «has two waves — increasing and decreasing» [2].
The most significant contribution of M. Kondratiev is the fact that the economic environment
(under his definition this is the synonym of economic dynamics) is a permanent process, in the structure of which there are two types of movement — the one reflects wavelike, spontaneous circulating processes, and the other — non-circulating, evolutional, which reflect a step-by-step development of productive forces of the society. Also M. Kondratiev noticed that besides the short and the medium fluctuations of the market economics, in practice there are very short and longer fluctuations.
Conclusions of M. Kondratiev have found their confirmation in further development of the economic environment. The long-term and deep crisis of 1929-1933 has arisen during the period of reduction wave of the large, which started at the end of the XIX century. Nearly in fifty years, in 1973-1975 again at the background of the reduction wave there occurred the deepest and the most destructive failure of production over the latest decades [3].
The economic growth in 80-90-ies of the XX centuries in the developed countries took place in conditions of the fifth technological mode, which reasoned the beginning of the new rising wave of the large cycle. At the modern stage the world economics is at the edge of the fifth and the beginning of the sixth technological mode. Its distinctive features are development and implementation of biotechnologies, nanotechnologies, gene engineering, membranous and quantum technologies, phonetics, thermonuclear energy (table 1).
In his turn S. Glaziev calls the change of dominating technological modes as technological revolution, in which he distinguishes five features: growth of innovation activity, rapid growth of effectiveness of production; social and political recognition of new technological opportunities; change of pricing proportions in accordance with the properties of the new technological system. The technological revolution is accompanied by mass devaluation of capital, engaged in production of obsolete technological modes, their reduction, worsening of the economic environment, deepening of external trading controversies, sharpening of social and political tension [5].
Table 1. - Periodization of technological modes
Technological mode Period of dominating Leading countries Prevailing technologies
1 1770-1830 Belgium, Great Britain, France Water engine, iron smelting and iron processing, channels building
2 1830-1880 France, Belgium, Great Britain, USA, Germany Steam engine, coal industry, machine building, ferrous metallurgy, machine tool building
3 1880-1930 France, USA, Great Britain, Germany Electro-technical and heavy machine building, steel production, nonorganic chemistry, heavy weaponry, shipbuilding, electricity transmission lines, standardization
4 1930-1970 USA, European countries, Japan Synthetic materials, organic chemistry, nonferrous metallurgy, electronic industry, car building, nuclear energy
5 1970-2010 USA, Japan, EU countries, countries of South-Eastern Asia Computing equipment, telecommunications, robot building, micro- and fiber optic technologies, space equipment, artificial intellect, biotechnologies
6 2010-2050 (forecast) China, USA, Japan, EU countries Nano-electronics, molecular and nano photonics, nano materials and nano structured coatings, nano biotechnologies, nano system technologies
Substitution of technological modes requires, as the rule, certain changes in social and institutional systems, which not only release the social tension, but also assist mass introduction of technologies of the new technological mode, consumption type characteristic of it and lifestyle. After this the phase of fast expansion of the new technological mode begins, which becomes the basis for economic growth and takes a dominating position in the structure of the economics. In the phase of growth of the new mode the majority of technological chains preliminarily are rebuilt in accordance with its needs. At the same time the following, newest technological mode is originating, which is in its embryonic phase till reaching by the dominating technological mode of the growth boundaries, after which the regular technological revolution begins. As the regular technological mode develops, the new infrastructure type is created, overcoming the restriction of the previous one, as well as transfer to the new energy resources takes place, which make the basis for formation of the following technological mode.
The financial crises which arose with the failure of mortgage boom in the American economics and covered many word countries in 2008, has provided
specific actuality to such aspect of research of long wave dynamics as creation at the certain stages of economic development of «financial bubbles».
The financial capital is more mobile than the industrial capital. During the installation period (i. e. in the phase of introduction of a long wave) a decisive role in the course of making decision as to investments into basic innovations, R&D necessary for that purpose is played by financial agents (financial top-managers of large firms, managers of banks etc.). In the phase of introduction the ability to evaluate the perspectives of commercialization of new knowledge is required from the financial agents, often even to initiate such process.
Active role f financial system in the long-wave dynamics is expressed in re-allocation of resources among technologies of various long waves. Facilitated rates of such re-allocation leads to formation in the economics ofboth — «positive» (the asset price exceeds its fundamental value), and «negative» (the asset price is lower than its fundamental value) of financial bubbles. The latter are characteristic of the period of large technological movements in the economics. Liquidation of positive financial bubble forms the tendency towards falling of mar-
ket prices for assets (analysis of cyclicality of economics of the largest countries as the fundamental factor of shares markets movement during the last 100 years is provided in table 2). The research demonstrates light connection and justification of the dynamics of stock markets with long waves in the economics, which arose in the XIX-XXI centuries. Crisis of2007-2009 completes a long 30-year cycle of the world economics (1980-1997 — expansion, 1997-2010 — rebalancing) [11].
Interconnection between the credit organizations and the innovation firms give significant influence at the view of development of the economic in the phase of growth of the long wave [6]. Further
participation of the financials in management of the new firms turns out to be less weighty as compared to the beginning of the phase of introduction of the rising long wave, but remains sufficient at mass crediting of new industries.
Banking intermediary permits facilitating establishment of these industries, growth of their issue at the cost of banking credits. The credit mechanism plays an important role in re-allocation of resources during creation of the new wave industry [15]. The less own resources there are in the company, including through the economic and political radical reforms, the more meaning has such credit investment of the growth.
Table 2. - Comparison of long waves in the market economics and dynamics of securities market in the XX-XXI centuries
Economic growth Crises war, after war fall Economic growth Stagnation Economic growth Crises Economic growth Crises
Countries OS i-H OS i-H OS <s OS i-H Os 3 OS i-H OS OS i-H os os i-H Os SO Os i-H Os O Os i-H Os 00 Os i-H o o o o o o o o
a^ OS i-H а^ r^ OS i-H a^ OS i-H a^ OS i-H a^ SO os i-H а^ o os i-H a^ 00 Os i-H ® O O <s o o » o o <s i-H o <s
USA Í 4 4 î î 4 î î 4 í 4
Great Britain. Í 1 4 î î 4 î î 4 í 4
Canada Í 4 4 î î 4 î î î í 4
Australia Í î 4 î î 4 î î î í 4
Japan 4 î 4 î î î î 4 î í 4
Germany Í î 4 î î 4 î î 4 í 4
France Í 4 4 î 4 4 î î 4 í 4
Italy 4 î 4 î 4 4 î î 4 í 4
Spain Í 4 4 î î 4 î î î í 4
On the other hand, is there are powerful diversified companies, a developed stock market and banking market makes liquidation of non-perspective assets and concentration of resources at the new approaches of the activity easier.
In conditions of approaching the phase of maturity of the long wave, banking intermediary activity owns certain advantages in the warning slowdown of investments in the power of the current wave. Refusal by the banks to credit projects for creation of additional facilities is able to restrain reinvestment of the respective industries.
However, errors of the banks in forecasting estimates of the industrial dynamics threat with strength-
ening of investment inertia, taking into account the possibility to continue mass investments at the cost of banking credits. Together with this, partnership between the banking and the real sectors of the economics may be also the factor of weakening of the investment inertia, strengthening the long-term motivations of their activity and attention to long-term regularities of technical and economic development.
This way, significant influence at the size and the consequences of arising of «financial bubbles» is made by both — development of the financial system on the whole, and the banking activity in particular. Therefore in line with the financial measures of operative nature in conditions of crises it is necessary to
take measures on preparation of the financial system for probation, stipulated by the long-term dynamics of the economic development. Arising of «financial bubbles» during the period of rising of the long term requires weighty approach when using share rates of highly technological companies to evaluate the completeness and the effectiveness of resolving strategic objectives in the sphere of development of science and innovations. Significant losses, which accompany the failure of such kind of «financial bubbles», testify to the danger of straight line comparison of success in resolving these objectives with growth of firs capitalization, acting in the new industries. Besides such financial rates it is necessary to take into account the actual effectiveness of using by the firms of the attracted cash. Such effectiveness expresses itself in competitive capacity of the products, the increase of the potential for further innovation development, including creation of basis for the regular renovation of technological production base.
It is necessary to mention that the theory oflong waves is not universal and was critically analyzed not once. Together with this the theory oflong-wave cycles helps to study and forecast general regularities of social and economic development.
Significant contribution into the economic thought as regards explanation and mitigation of fluctuations belongs to works of J. M. Keynes. The Keynesian theory considers the cycle as the result of interaction between movement of national revenue (NR), consumption and accumulation of capital, which is forms by the dynamics of effective demand, stipulated, in its turn, by functions of consumption and investments. This way, the key reason of crises he considered reduction of threshold disposition to consumption, which causes reduction of the accumulated demand concerning the accumulated offer [7].
The Keynesian theory of cycle was the basis for state anti-cycle policy, assigned for expanding of the accumulated demand during the periods of crises and its restriction during the periods of rises. The key tools of the anti-cycle regulation, under this theory, is budget and credit monetary policy, though their effectiveness is objectively restricted (by inflation growth, by monetary offer) and cannot remove internal reasons for cycle economics development.
It is worth remembering one more cycle theory, which has arisen within the frameworks of the institutional idea of state control over the economics. The American economist W. Mitchell defended the opportunity to remove crises at the cost of using state costs. He considered that business cycles are the expression of monetary (market) economics. They are the result of interaction of numerous parameters (prices, share rates, investments, savings, credit volumes etc.). In the opinion of W. Mitchell, the basis of the cycles is striving of entrepreneurs to the profit, which, in its turn, depends on interaction of different variables (prices and costs, credit amounts, sales volumes etc.) [13].
At the beginning of the 1970-ies the Keynesian theory was opposed by the monetary theory of M. Frid-man cycle, under which the reason ofcyclicality of the economic development and crises related with this, as well as inflation, unemployment, is in the wrong monetary policy of the state, which expresses itself in the nonconformance ofmonetary mass in turnover to the growth rates of GDP, hence — the necessity of strict regulation by the state ofmonetary mass, which stipulates its growth at the level of3-5% per year [14].
At the same time there appeared the theory of real cycles, founded by F. Kudland and E. Preskott. They, agreeing with the theory of rational expectation of R. Lukas, explain all fluctuations of the economics as a balanced phenomenon and assume that firms always maximize their profit, and investments are related to expectation of future demand for their products [1].
If viewing the cyclicality as repeating of the cycle phases, namely: crises, depression (bottom of crises), revival and raise, it is possible to notice that the majority of scientist economists in their theories stressed at the first two phases of the cycle. However in conditions of fast, bit uneven growth, which took place in the past-war period, western economists were forced to concentrate not only at the crises and the depression, but also at other phases of the cycle — revival and raise. AT that time it was found out that explosive inflation booms are also harmful for the economics, as well as long-term depressions, which proposed a thought about the necessity of regulating the cycle at all stages of its duration.
The key reason of absence in the economic science ofthe uniform and generally accepted theory ofcrises is rather not methodological and ideological discrepancies between the scientists, but the reasons ofontologi-cal nature only: real economics as the object ofresearch changes all the time. In this object the deep essential reasons remain unchanged in principle, but the hierarchy of factors changes over them under the influence of changeable world economics. These factors may include technological changes (and their revolution), globalization of the economic life, changes in boundaries of interstate links and their groupings, changes of currency systems, the growing role offinancial sector in the world economics and many others [4].
This way, to the extent of accumulation of changes in the real economics there arise new theoretical structures, which are more adapted to the new conditions and in this or that way object against some provisions of the previous theories. Crises are a particular «acid test» of problems, imbalances, contradictions, inherent to the economic system. Undergoing the evolution together with the development ofeconom-ics, crises not only present threat to its system, but also provide additional impulse to its development.
In conditions of the cyclic development of the world economics especially important essence belongs to formation of stable and completely func-
tioning international banking system, able to provide objects of economic relations with full spectrum of financial services. On the basis of analysis of the approaches to establishment of the essence, properties and specific features of various forms of investment banking activity, I is offered to divide them into two groups as to the extent of participation of the banking establishment in the international banking system: the direct (actual presence abroad — representative office, branch, agency, subsidiary bank, joint bank, and virtual presence abroad — Internetbanking) and indirect (system of correspondent relations) [17].
The economic basis for further development of investment banking activity are computer and information technologies, as the banks have to accommodate to the needs of customers, specific features of performing business and their lifestyle, by way of providing international banking operations online, as well as expanding or change of the spectrum of offer as to international banking services and products. As the result of the analysis of theories of cyclicality of the world economy it is justified that development of investment banking activity, as any other economic activity, has cyclic nature, therefore crises present not only threat for the international banking system, but also provide additional impulse to its development.
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DOI: http://dx.doi.org/10.20534/AJH-16-9.10-71-77
Karimov Norboy Ganievich, Doctor of Economic Sciences, Head of Department"Banking" TashGEU E-mail: [email protected] Tashkhodjaev Mukhtor Maksudzhonovich, Candidate of Economic Sciences, Dean of the Faculty "Corporate governance"
Prospects of development of securitization of banking assets in Uzbekistan
Abstract: The article deals with a burning question as an opportunity to transform bank loans into securities that will make the stock market in Uzbekistan to earn in full force, and the banks at the same time create an additional resource base for the possibility of issuing loans.
Keywords: bank resources, securitization, the initiator of the securities, the transformation of loans, liquidity, investors, provision of securities.
