Global financial management refers to the financial system operating at an international level. While the banking system in one country may be managed in a certain way, according to certain regulation, global financial management looks at the health and performance of the global economy. This includes global institutions such as the International Monetary Fund and the Bank for International Settlements. The global financial management system faces a number of challenges.
Consumer debt presents a significant challenge to the global financial management system. This is a particular problem in the economies of the United States and Western Europe, where consumer debt is generally high. The average person living in these countries has very little in the way of personal savings and is therefore a very high risk when it comes to defaulting on this debt. On a global scale, regional variations in consumer debt can have a knock-on effect to the health of the global financial system.
The global financial management system is sensitive to the issue of corporate credit. While the system must be seen to support the restructuring or growth of new and existing businesses, these activities must be balanced against the issues presented by large amounts of corporate credit. Once again, this can be a regional problem. In some countries, a significant percentage of all bank borrowing comes from small to medium-sized businesses. This means that they have a much higher risk of defaulting.
Support for emerging markets
The way in which banks in western countries manage consumer debt is through significant reductions in borrowing rates. In these countries, the risk of inflation is much lower, which means that they can maintain these rates over the longer term. This isn't possible in emerging markets, where the risk of inflation is much higher. This makes the banking system in emerging markets much less stable, and it often requires large amounts of money to be fed into those banking systems to try to maintain financial health.
Regulation and risk management
Problems with financial regulation continue to emerge in western markets. Large financial institutions continue to be found in breach of financial laws, leading to large fines and further instability in the system. The global financial management system is under continual pressure to force greater regulation to prevent these crises, without crippling the ability of banks to operate effectively. This is a difficult balance, often made harder by certain political and social regimes.
Real estate values
The real estate market has deteriorated significantly since 2008, and what was once a sound investment is now much riskier. Real estate foreclosures, vacant properties and falling or stagnant property prices in certain areas present a significant challenge to the global financial management system. Financial analysts must look for solutions to the reliance on property as an investment that prevent future challenges.