ARTICLE: CORE PRINCIPLES FOR EFFECTIVE BANKING SUPERVISION: AN ENFORCEABLE INTERNATIONAL FINANCIAL STANDARD? Skip over navigation
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Copyright (c) 2005 Boston College International & Comparative Law Review
Boston College International and Comparative Law Review

ARTICLE: CORE PRINCIPLES FOR EFFECTIVE BANKING SUPERVISION: AN ENFORCEABLE INTERNATIONAL FINANCIAL STANDARD?

Spring, 2005

28 B.C. Int'l & Comp. L. Rev. 237

Author

DUNCAN E. ALFORD *

Excerpt

INTRODUCTION

Banking is typically one of the most regulated industries within a nation's economy because it serves as the economy's payment mechanism, gathering financial assets and redeploying them for productive purposes through loans and other types of credit. 1 Because banking and its payment function are so crucial to an economy's operation, national governments tend to regulate this industry heavily and occasionally even own banks. 2 As international trade has grown, each nation's banking system has likewise become more international. World merchandise trade increased from US$ 579 billion in 1973 to US$ 6,272 billion in 2002. 3 International bank loans increased from US$ 2,713.7 billion in 1985 to US$ 20,212.9 billion in 2003 4 -- a 744% increase.

Despite this growth in international banking, national governments have been very hesitant to enter into international agreements that involve ceding regulatory control of banks incorporated or opeating within their jurisdictions. National governments tend to view any transfer of regulatory control over their banking systems as akin to a surrender of sovereign power. 5

National governments generally wish to retain control over banking systems because of the high costs and negative political repurcussions of bank failures. 6 National governments, and related agencies such as a central banks, typically have lender of last resort responsibility for banks operating within their borders. 7 If a bank has insufficient liquid funds to meet payment demands from depositors, the national government, through its central bank, may lend funds to the bank to meet these demands. 8
 
 
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