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James R. Barth
Senior Fellow
Banking and Capital Markets and China and Europe and Financial Innovations and Global Economy and Public Policy and Real Estate and U.S. Economy
Dr. James R. Barth is the Lowder Eminent Scholar in Finance at Auburn University and a senior fellow at the Milken Institute. His research focuses on financial institutions and capital markets, both domestic and global, with special emphasis on regulatory issues.
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Global bank regulation update: Consensus on principles, variation in practices
By: James R. Barth
January 21, 2014
   
   

Financial system policymakers around the world continue to implement regulatory reforms to financial markets, financial institutions, and financial systems in response to the 2007-2009 global financial crisis. However, the overall understanding of the nature and scope of those reforms remains rather vague and, perhaps, inaccurate in key respects. That is true even for a major subset of policy responses which have been a central focus aEUR" some would say the central focus aEUR" of policy makers, the financial press, and market participants: measures to address risks to the financial system posed by large, globally-active banks. A critical mass of these so-called aEURoesystemically important banksaEUR? (SIBs) are headquartered in the G20 countries.

Our analysis of new and/or under-appreciated information on recent regulatory developments based upon detailed, country-by-country supervisory data recently for the G20 member countries yields two main conclusions about their national supervisory regimes for SIBs: (1) supervisory authorities strongly agree that SIBs merit special oversight and treatment; but (2) authorities hold a range of opinions on how best to do that. Time will tell whether those different approaches do the job and, if not, in what directions aEURoebest practicesaEUR? move.

Furthermore, it is clear that the most important systemic banks are those posing risks to the global financial system (so-called G-SIBs). In this regard, among the internationally cooperative financial system reform initiatives underway, and perhaps somewhat at odds with common perceptions, it is the G20aEUR(TM)s (rather than, for example, the Basel CommitteeaEUR(TM)s or the IMFaEUR(TM)s) agenda which by far comes closest to being aEURoetheaEUR? global agenda. Based on what happened, when, and how, we believe that the greatest progress has been made on initiatives targeting G-SIBs. Substantial as that progress has been, however, the work left to be completed is considerable. That is certainly true for the global banking industry where, for example, how to deal with the failure of a large, globally active bank remains one of the most difficult challenges facing regulators and policy makers. And, of course, beyond that are the many challenges presented by systemically important nonbanks and the shadow banking system.

For a discussion of these and related issues, read our report, “Regulation and Supervision of the Biggest Banks by the Biggest Countries: Consensus on Principles, Variation in Practices.