Issues in international banking regulation: global policies for global markets

The trend towards globalisation of financial markets has been given further impetus in recent years by the dismantling of exchange controls, a dramatic rise in cross-border investment flows and increased access to domestic banking markets by foreign institutions. At the same time, banking can no longer be regarded as a distinct financial service, having become intermingled with other financial activities, including securities business. Another important development has been banks' growing involvement in financial derivatives. Finally, banks all over the world face increasing competition as a result of a dismantling of domestic restrictive practices; the liberalisation of cross-border activities; and the displacement of conventional bank lending by securities financing. The above trends pose formidable problems for bank regulatory authorities who are having to cope not only with a riskier banking system, but a banking system whose boundaries have become unclear and which is increasingly prone to contagious disorders originating in other areas of the financial services industry. The conclusion of this paper is that regulators will have to confront these difficulties by enlarging the scope of current co-ordination initiative