As Banking Regulation Gets a Global Facelift, Will Traditional Centers of Influence Shift?

Not surprisingly, much of the conversation at BS&T's third annual Executive Summit, which was wrapping up at press time, had to do with the global financial crisis. There also was plenty of gallows humor shared among Summit attendees. For example, noting that several of the attendees were with banks based or operating in Mississippi, it was suggested that with all the turmoil in the historical global financial centers of New York and London, perhaps the Magnolia State would emerge as a major financial hub in the new world order.

Facetiousness aside, New York and London won't be in a position to call many shots, especially in terms of regulation, which likely will be developed in a much more global context than ever before. That is one of the observations in a report issued earlier this month by the Group of Thirty that analyzes the current challenges facing the global financial system.

The G30 report concludes that there currently are four approaches to financial supervision: institutional (a firm's legal status determines which regulator oversees its activity); functional (supervisory oversight is determined by the business that is being transacted by the entity); integrated (a single universal regulator conducts both safety and soundness oversight as well as conduct-of-business regulation for all sectors of financial services); and "twin peaks" (regulatory functions are separated between two regulators -- one performs the safety and soundness supervision function and the other focuses on conduct-of-business regulation). The U.S. structure is described in the report as functional with institutional aspects.

While the report declines to make specific recommendations, "There's no doubt that the [current] system of regulation and supervision needs to be revised," not only in the U.S. but in other global markets as well, according to Paul Volcker, chairman of the G30's board of trustees and former chairman of the Federal Reserve Board.

But don't look for regulation to provide competitive advantage to any one market or type of institution. Volcker noted that in the name of competitive advantage and flexibility, "a lot of activities were taken one way or another" -- especially as financial institutions exploited the market for credit alternatives. "Now everyone's running back to Mother -- commercial banks," Volcker said. But does Mother live in Mississippi?

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio