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THE REGULATION OF INTERNATIONAL BANKING






International banking activities are closely monitored and regulated by both home and host countries all over the globe. However, there is a strong trend toward deregulation of banking and the related fields of securities brokerage and securities underwriting. Moreover, an increasing number of nations have recently recognized the necessity of coordinating their regulatory activities so that, eventually, all banks serving the international financial markets will operate under similar rules.

International banking activities are regulated for many of the same reasons that shape the character of domestic banking regulations. There is an almost universal concern for protecting the safety of depositor funds, which usually translates into laws and regulations restricting bank risk exposure and rules specifying minimum amounts of owners' equity capital to serve as a cushion against operating losses. Regulations frequently limit nonbanking business activities (such as underwriting corporate securities, underwriting or brokering insurance, etc.) also to avoid excessive risk taking. Then, too, to the extent that international banks can create money through their lending and deposit-creating activities, international banking activity is regulated to promote stable growth in money and credit in order to avoid threats to each nation's economic health.

However, international banking regulations are unique to the field itself—that is, they don't apply to most domestic banking activity. For example, foreign exchange controls protect a nation against loss of its foreign currency reserves, which might damage its prospects for repaying international loans and purchasing goods and services from abroad (e.g., petroleum, food, machinery, etc.). Another instance would be rules that restrict the outflow of scarce capital funds that some governments see as vitally necessary for the health of their domestic economy and as a key element in strengthening their balance of payments position with the rest of the world. There is also a strong desire in many parts of the world to protect domestic financial institutions and financial markets from foreign competition. Many countries prefer to avoid international entanglements and excessive dependence on other countries for vital fuels, raw materials, food, and other goods and services. This isolationist philosophy often leads to outright prohibition of outside entry into full-service banking and may also restrict the international operations of domestic banks.

 

1. Define and put down the key words of each paragraph of the text. Retell the text using the key words.

 

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