The Impact of Bureaucracy on Profitability in Banking-A case study of sanctioned countries
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The impact of Bureaucracy on Profitability in Banking-A case study of sanctioned countries
One of the most booming businesses across the world is banking. Within the banking industry, making profit is one of the major objectives and banks do whatever they do in order to maximize on profitability. However, there is concern that there are a number of factors that can deter the banks from making the most they can and sometimes even running into losses (Christophers, 2013). Such factors include bureaucracy. Being a risky business, some level of bureaucracy is necessary in keeping the banks safe from risks and also helping them remain compliant with the law and regulations (Jonung, 2009 and others).
Some of the risks the banks are trying to avoid are those associated with money laundering, fraud, and bad publicity. However, it is observable that most of the banks are exercising bureaucracy so much so that they end up losing good businesses. For instance, banks require concrete evidence of the nature of the business that one is doing in order to accept a banking relationship with. This becomes challenging for those people who earn a lot in ways which are amorphous but genuine. Most shy from approaching banks for such reasons. Another important aspect that can be considered for such a study is the idea of sanctions. Countries such as Britain and America have sanctions certain countries for reasons such as terrorism. When a whole country is sanctioned, it means that the level of engagement in as far as business is concerned is drawn to zero.
Some of the countries which are sanctioned by Britain and America, for example, include North Korea, Burma, Sudan and Iran among others. As part of the restrictions, most banks with ties with the sanctioning countries are restricted from dealing with individuals who either come from these countries or who have ties with the countries (Redwood, 2013). In as much as the political and diplomatic interests are being protected, there is a massive loss of business that banks could be making profits from if the restrictive countries would find lenient ways through which such sanctions could be applied. For instance, only particular individuals can be listed on the sanction lists but not the entire countries in order to encourage further business and profitability. Backing up this argument is the fact that it is not justifiable to tag a whole country or state as one that befits sanctions on account of the acts of a few people such as terrorists (Schoenherr, 2011). Such a study can entail an in-depth analysis of the potential turnover the banks miss on by not accepting businesses from such countries. Such analysis can involve a democratic study of the chosen countries with dimensions such as population, per capita income, economic activities and such dimensions which can account for such a massive loss of business.
References
Christophers, B. (2013). Banking Across Boundaries: Placing Finance in Capitalism. New York: John Wiley & Sons.
Jonung, L. (2009). Building the Financial Foundations of the Euro. New York: Routledge.
Redwood, J. (2013, May 14). Banking bureaucracy is suffocating. Retrieved from http://johnredwoodsdiary.com: http://johnredwoodsdiary.com/2013/05/07/banking-bureaucracy-is-suffocating
Schoenherr, N. (2011). New banking bureaucracy may not help consumers. WUSTL finance expert comments on Consumer Financial Protection Bureau. St.Louis: Washington University in St.Louis.
