Evolving international supervisory architecture: Design, rationale and policy reform
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Volume 6 Number 3
Evolving international supervisory architecture: Design, rationale and policy reform Saibal Ghosh Department of Economic Analysis and Policy, Reserve Bank of India, Fort, Mumbai 400001, India tel: +91-22-22661602 (Extn: 2237); fax: +91-22-22660729; e-mail: [email protected]
Saibal Ghosh is an officer in the Department of Economic Analysis and Policy, Reserve Bank of India, India. The views expressed in the paper are entirely personal.
ABSTRACT The evolving transnational supervisory arrangements do not fully address the existing asymmetries in institutional arrangements. Seeking to broad base the unrepresentative arrangements to include the developing countries in the standard setting process and thus enhancing the universality of supervisory standards remains a major challenge.
Journal of Banking Regulation, Vol. 6, No. 3 2005, pp. 246–260 # Henry Stewart Publications, 1745–6452
Page 246
INTRODUCTION The need for an international supervisory framework arises from the globalisation of banking business — the fact that ‘the jurisdiction of national regulators is smaller than the geographical business area of regulated financial institutions’.1 This global reach of domestic business and vice versa has systemic implications for both host and home countries. With greater access to international markets being ensured by recent international initiatives, domestic/ international financial institutions, national supervisors, investors and rating agencies are driving the development of global standards based on international benchmarks and best practices. Ongoing international
efforts towards development of minimum standards and harmonisation have come into focus following the renewed interest by policy makers in bank soundness. The reasons for the same are not too far to seek. Driven by the twin forces of liberalisation and innovation, the financial landscape has witnessed a virtual metamorphosis over the last three decades. This has resulted in a substantial increase in the importance of the financial sector: permitting the channelling of a greater quantum of investible resources and their allocation into high productivity outlets, promoting faster routes of growth and sounder economic development. On the flip side, however, this transformation of the financial marketplace has extended and tightened linkages across markets and institutions, increased the uniformity of the information set available to economic agents and encouraged greater similarity in the assessment of information. This, in effect, has meant that weaknesses in the financial system can have serious and far more disruptive economic ramifications than was previously the case and engender contagion effects extending well beyond national boundaries.2 Evidence in support of the same both at the international and national levels abound. The Mexican crisis of 1994– 95, the East Asian crises of 1997–98 and the more recent crises in Argentina and
Ghosh
Turkey are ample testimony to this fact. At the national level, the banking crises in Nordic co
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