Cross-Border Banking: Regulatory Challenges by Gerard Caprio Jr, Douglas D Evanoff, George G Kaufman

By Gerard Caprio Jr, Douglas D Evanoff, George G Kaufman

Cross-border banking, whereas having the opportunity of a extra effective monetary zone, additionally creates capability demanding situations for financial institution supervisors and regulators. It calls for cooperation by means of regulatory specialists throughout jurisdictions and a transparent delineation of authority and accountability. That delineation is sometimes now not current and regulatory experts frequently have considerably various incentives to reply while cross-border-active banks come across problems. every one of these concerns have in basic terms started to be heavily evaluated. This quantity, one of many first makes an attempt to deal with those concerns, brings jointly specialists and regulators from diversified international locations. the big variety of issues mentioned comprise: the present panorama of cross-border financial institution job, the ensuing aggressive implications, rising demanding situations for prudential legislation, safeguard internet matters, failure answer concerns, and the aptitude destiny evolution of foreign banking.

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It is also clear that, for the foreseeable future again, the European Union and the EuroZone will not be coterminous. At the moment, 12 of the 25 members of the European Union use the euro as their currency. Perhaps 10 of the others have an ambition to do so, though it may take some time for all of them to meet the criteria. But in 3, Denmark, Sweden and the UK, membership is a long way off. I can speak with authority only of the United Kingdom, but I see almost zero probability of our joining the EuroZone in the next decade.

In 2003, there were, in total, 563 branches and 390 subsidiaries for banks from European Economic Area countries. More significant for the purpose of this study, is the fact that cross-border mergers involving banks of significant size have all resulted in holding company structures with subsidiaries. This is, at first glance, a very surprising outcome of the single banking market, as it would seem that a single corporate bank structure would have reduced the regulatory costs significantly. This questions the choice of the subsidiary-structure when branch banking is facilitated by European law.

However, conflicts of interest can arise between several parties: bank shareholders, depositors, deposit insurers, borrowers, and bank managers. This has raised interest in financial contracting. Although very much applied to the debt versus equity financial structure issue, it has also been applied to the choice of corporate structure. A subsidiary structure for a bank could make sense for three reasons. First, it would reduce the dilution cost of outside finance if the financiers did not have to worry about risk shifting in a far away and "opaque" subsidiary.

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