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Resolving the regulator's dilemma: international coordination of banking regulations

Published online by Cambridge University Press:  22 May 2009

Ethan B. Kapstein
Ethan B. Kapstein
Affiliation:
John M. Olin Research Associate at the Center for International Affairs, Harvard University, Cambridge, Massachusetts.
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Abstract

Since the early 1970s, bankers have developed a host of new financial instruments and practices. These innovations have altered the nature of banking, and this in turn has complicated the task of banking regulation. National regulations have become largely ineffective in monitoring the safety and soundness of global banks. The resulting market changes and the growth of knowledge about the risks facing the international financial system have prompted governments to hold multilateral discussions regarding banking regulation. However, the task of international regulation has been compromised by the desire of states to attract foreign and domestic investment to the financial sector. Since states wish to create or maintain competitive banking institutions, they have often deregulated in order to provide banks with a cost advantage in the international marketplace. This “competitive deregulation” undermines collaborative efforts.

Under the leadership of the United States and Great Britain, a multilateral agreement on bank capital standards was reached in December 1987. This agreement suggests that the interplay of market factors, consensual knowledge, and leadership by powerful states can lead to international policy coordination. The article describes the multilateral negotiations that led to this banking accord.

Type
Articles
Information
International Organization , Volume 43 , Issue 2 , Spring 1989 , pp. 323 - 347
Copyright
Copyright © The IO Foundation 1989

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References

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