Rgulating

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ssay 16

• Rgulating
• Intrnational Banking

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Introduction

• Bank - financial institutions providing services
  as intermediaries of the capital and debt
  markets responsible for transferring funds from
  investors to companies
• Regulation
• Traditionally domestic or host countries
• Nowadays international organizations

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The problem of bank failure

• Banks use depositors funds to make loans and
  purchase assets(Krugman, 2005)
• Failure can easily spread to other banks
• Some managers ignore the cost of failure to the
  society and economy as a whole incurring in
  unnecessary risks

Whenever a bank is not able to accomplish its
obligation with its depositors
FAILURE
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The problem of bank failure (2)

• Damage economys macroeconomic stability and
  provoke higher capital losses to individual
  depositors.
• The well function of bank services depends on
• customers confidence level in the value of its
  assets
• rumours (true or not) about financial stability

decrease ability of financing investments and
consumer expenses (decrease of aggregate demand)
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Bank regulation American cae
Five special safeguards

• Federal Deposit Insurance Corporation (FDIC)
• government exposed to losses from failure
• discourages depositors to withdraw its
  investments
• Regulation - same level of discipline to all
  banking system
• - ensure that the risky behaviours are
  abolished
• Reserve requirements
• part of assets in a liquid form (money) to
  respond to deposit outflows

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Bank regulation American cae (2)

• Capital requirements and asset restriction
• Examples - minimum level of banks capital
• - some
  private investors or a single foreign government
• borrower intentions to buy a large
  portion of banks
• assets.
• Bank examination
• Fed, FDIC and Office of the Controller of
  Currency
• Lender of Last Resort facilities
• Feds can borrow money so banks can face the
  depositors needs

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Bank rgulation Europan cas
1. Evolution
1973 - National Treatment equal system of
non-discriminatory regulations and
supervisions 1977 - Concordat of BCBS
(responsability of parent bank for the activities
in all his europe branch)
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Bank rgulation Europan cas (2)
1989 - Single European Act Provisions
(elimination of Capital Control) 1999 -
Financial Service Action Plan (FSAP) 2001 -
Committee of European Securities Regulators
(CESR) which work with the European commission
for the national implementation of security
regulators
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Bank rgulation Europan cas (3)
2. Regulation and Supervision

• European banks
• Financial services trades among them without
  special authorisation.
• Open subsidiaries in Europe countries with the
  same conditions of the local ones
• Market scale economies
• operates as a network
• information asymmetries

Regulations are created at European level and
equal to all
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Bank rgulation Europan cas (4)
3. Adaptation to single currency (uro)

• Can be a problem especially when financial
  crisis occur
• Confident partnership
• Role of Bank deposits for the health of banking
  and financial systems

Why? All the members must agree with
actions national supervisors must be impartial
Cannot exist information asymmetries
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Difficulties in International Regulation

• Absence of Deposit insurance
• Growth of Eurocurrency trading has similar
  consequences as if there was a lack of reserve
  requirements
• Difficulty about a creation of international
  system
• Difficulty to provide of LLR assistance in
  International banking

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International Regulatory Cooperation
1. Necessity of international banking regulation

• Because growing market for the Eurocurrencies,
  developed countries banking system weakened.
• Harmonization of banking objectives among
  countries
• Difficulty in monitoring international banks due
  to different regulations across jurisdictions
• Creation of Basel Committee on Banking
  Supervision (BCBS)

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International Regulatory Cooperation (2)
2. Basel Committee on Banking Supervision (BCBS)

• Based in BIS headquarters at Basel
  (Switzerland),, hence the name. (Note that
  supervision only in the Euroarea would not be
  efficient.)
• Role to achieve a better coordination on
  surveillance, always exercised by national
  authorities over the international banking
  system (Krugman, 2005)
• Members Belgium, Canada, France, Germany,
  Italy, Japan, Spain, Luxembourg, Netherlands,
  Sweden, Switzerland, UK and USA. A number of
  other non-member countries also attend meetings.

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International Regulatory Cooperation (2)

• Sponsor understanding and new global patterns of
  regulation
• 1975 Concordat agreement supervision
  responsibilities
• LDCs emerging exchange open markets Core
  Principles for Effective Banking Supervision
  help LDCs understand its limitations
• Major organization working to member countries
  banking regulators harmonization

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Conclusion

• Developing means to extend surveillance into
  domestic regulatory structures that have not been
  subject to security in the past. National regimes
  in the financial sector are much more deeply
  embedded in political bargains
• Kahler, 1995

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