Wednesday, November 10, 2010

A fundamental mistake: the G20's two-tier bank plan

According to reports, most Asian banks will be exempted from a global regulatory regime in spite of their size.

As some of the biggest banks in the world are now Asian, this is surprising.

Why would Asian banks be exempted from a global agreement?

Apparently, because of their domestic focus!

This is a fundamental mistake: many Asian banks do operate ENTIRELY domestically (gathering and loaning assets only within their countries). However, there are many banks, specially the larger ones, that may operate MAINLY within their countries, but are involved in all sorts of activities that are international. For example, these apparently domestic banks finance companies involved in international trade. More important, they borrow funds via some route or other from foreign entities.

At a time when Asia and other emerging markets are the engine of whatever growth is taking place, and Western investors are stampeding east, the bankruptcy of a big Asian bank will have the same catastrophic effect on sentiment as the bankruptcy of a big Western bank. Sphere: Related Content

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