The purpose of this paper is to discuss the issues related to international financial services, particularly foreign direct investment in banking. The paper discusses the challenges of measuring incomes generated from the activities of multinational banks, including their international lending and direct investment in host countries. The paper highlights the complementary role of FDI and trade in financial services and discusses investment in banking services. The patterns of FDI in banking in Eastern European countries, Latin America and East Asia are also analysed with a focus on the costs and benefits of FDI in banking in the emerging countries.

This paper examines the dynamic relationship between daily stock and government bond returns of selected countries over the past decade to infer the state and progress of inter-financial market integration. We proceed to empirically investigate the influence of the European Monetary Union (EMU) on time variations in inter-stock–bond market integration/segmentation dynamics using a two-step procedure: First, we document the downward trends in time-varying conditional correlations between stock and bond market returns in European countries, Japan and the US. Second, we investigate the causality and determinants of this interdependent relationship, in particular, whether the various macroeconomic convergence criteria associated with the EMU have played a significant role. We find that real economic integration and the reduction in currency risk have generally had the desired effect on financial integration but monetary policy integration may have created uncertain investor sentiments on the economic future of the EMU, thereby stimulating a flight to quality phenomenon.

While financial institutions' aggregate investments have grown substantially worldwide, the size of their individual shareholdings, and ultimately their incentive to monitor, may be limited by the free‐rider problem, regulations, and a preference for diversification and liquidity. We compare institutions' shareholding patterns across countries and find vast differences in the extent to which they are large shareholders. These variations are largely determined by macro corporate governance factors such as shareholder protection, law enforcement, and corporate disclosure requirements. This suggests that strong governance environments act to strengthen monitoring ability such that more institutions are encouraged to hold concentrated equity positions.