Regulating International Banking By Jessica Heaston The Problem

Regulating International Banking By: Jessica Heaston

The Problem of Bank Failure How do banks fail? A bank fails when it is unable to meet its obligations to depositors. Consumer Confidence Loss in confidence undermines the payments system on which the economy runs.

Consequences of Bank Failure Loss to individual depositors Harm Loss to macroeconomic stability of confidence Reduction in financial investment Reduction in aggregate demand

U. S. Bank Regulations Deposit Insurance Reserve Requirements Capital Requirements & Asset Restrictions Bank Examination Lender of the Last Resort

U. S. Savings & Loan Crisis Caused the 1990 -1991 Recession Fall in commercial real estate values Sharp rise in bank closures Depletion Fund of the FDIC Insurance

International Banking Unprotected No Interbank Deposits Reserve Requirements Bank Examination Difficulty Lender of the Last Resort Responsibility Unclear

World Regulatory Cooperation 80% Eurocurrency Deposits in Private Banks High level of interbank depositing Development of Basel Committee

Basel’s Affect: Emerging Markets Poorer, developing countries that have liberalized their financial systems ◦ Brazil, Mexico, Indonesia, Thailand Sources and destination for private capital flows Core Principles for Effective Banking Supervision