Thorsten Beck
Biography
Thorsten Beck is Professor of Economics and Chairman of the European Banking Center. Before joining Tilburg University and the CentER, he worked at the Development Research Group of the World Bank. His research and policy work has focused on two main questions: What is the effect of financial sector development on economic growth and poverty alleviation? What are the determinants of a sound and effective financial sector? Recently, his research has focused on access to financial services by small and medium-sized enterprises and households. He is co-author of Making Finance Work for Africa and Finance for All? Policies and Pitfalls in Expanding Access. His country experience in both research and policy work includes Bangladesh, Bolivia, Brazil, China, Colombia, Mexico, Peru, Russia and several sub-Saharan African countries.
Abstract
Matching Global Banks with Global Regulation
This paper looks at cross-border banking and, in doing so, raises interesting issues about the strengths and limits of international, global supervisory mechanisms. Well-developed financial systems are critical for economic development, and growth and banks constitute one of the core segments of the financial system. Banks, however, are also at the centre of boom-and-bust periods that many capitalist economies have regularly experienced, most recently in 2008 and 2009. The susceptibility to bank runs, interlinkages of banks through interbank market and payment systems, and the critical role of banks in creating information (and thus helping overcome market frictions) generate external costs from bank failure, which have resulted in the banking system being one of the most regulated sectors of the economy. The globalisation of the financial system, illustrated by globalising markets and banks, has created new opportunities and benefits, but also significant additional risks. Regulating global banks at the national level undermines the benefits that global banks can bring to economies by exacerbating their risks. Future regulatory frameworks have to be matched to the challenges presented by global banking. He argues that bank regulation is an area where more than convergence, we need supra-national frameworks to harness global banking markets for the benefits of host economies. This does not necessarily require the construction of new supra-national institutions, but rather incentive-compatible frameworks that can be built around existing institutions. Rather than seeing this as a debate about national sovereignty, this debate should be framed as designing an optimal regulatory framework to minimize losses from bank fragility while maximizing the benefits of banking for everyone.
