Toward global regulatory harmonization in banking

Abstract

AbstractSeveral principles of international bank regulatory jurisdictions have emerged since the mid‐1970s. Each principle has advantages and disadvantages in promoting cross‐border competition, ensuring prudent banking practice, and maintaining worldwide financial stability. At the same time, simultaneous application of different principles by different countries has caused overlapping, underlapping, or sheer avoidance of bank regulations, resulting in less transparency and an uneven playing field for internationally competing banks. To level the playing field, bank regulatory harmonization has been advocated, particularly under the auspices of the Basle Committee on Banking Supervision. However, as demonstrated in the case of setting minimum capital standards for market risks, a successive harmonization approach may not be the panacea. There is a need for rethinking of efficiency in regulation, including incentive‐compatible approaches.