REGULATION OF INTERNATIONAL BANKING - A REVIEW OF THE ISSUES

Changes in the nature and structure of banking and bank regulation over the past ten to fifteen years have been pervasive. Commercial banks are less important in their role as financial intermediaries and increasingly important in securitization and fee-earning functions. The financial services sector has changed dramatically with thrift institutions performing certain roles previously reserved for banks. The regulatory structure has been altered with emphasis placed on free-market interest rate determination and with a greater focus on capital (net worth) adequacy in relation to balance sheet and non-balance sheet conditions. Third World debt, crises in the U.S. financial services sector, innovation in financing procedures including off balance sheet activities, financial integration within Europe, and the forced closure of a major international bank (Bank of Credit and Commerce International), have all focused attention on the possible need for adjustment in the regulatory structure at the international level. However, there is an absence of agreement on whether government overview should be increased or if greater reliance should be placed on the discipline of the free market at both the national and international levels. The purpose of this study is to survey and assess the need for regulation within the framework of these changes. National banking markets are examined briefly, but emphasis is placed on regulation within an international setting.