New Regulation and the New World of Global Banking

Abstract

Global banks are changing. With a new set of rules come new business models. We review the international dimension of the financial crisis, centring on cross-border losses and cross-currency funding problems that prompted authorities to adopt wide-ranging rescue measures and liquidity operations. Against this background, we proceed to examine the regulatory response, focusing on the Basel III framework and the ongoing work of the Basel Committee and Financial Stability Board regarding the amount of capital banks are required to hold, restrictions on maturity transformation on banks' balance sheets and proposals to mitigate the risks posed by systemically important financial institutions. Our conclusion is that capital and liquidity regulation will have distinctly different effects on the international organisation of banks. Liquidity regulation, especially when applied locally, has the greatest potential to reshape the global banking landscape.

Keywords: Global banking, bank funding, liquidity regulation, Basel III

JEL Classification: F36, G01, G21, G28, H12