Wednesday, May 26, 2010

Conflicting Efforts at Global Economic Reform

Although global leaders are making efforts to restore the health of the world's economy, the Washington Post reports that "the United States and Europe are increasingly pursuing their own -- sometimes clashing -- paths to reform, potentially undermining the regulatory overhauls taking shape on both sides of the Atlantic." Despite their efforts to make financial rules consistent among different countries, the United States and Europe may be introducing conflicting reforms that could result in companies moving operations overseas to avoid regulation in their own country (see
"U.S., Europe Fall Out of Step on Global Financial Reform," Washington Post, 5-26-10). European leaders are also expressing concern about a provision in the Restoring American Financial Stability Act (S 3217) that would prevent U.S. banks from handling derivatives.

Are there currently any global economic standards in place? It turns out that there are standards for the amount of money banks should hold in reserve. Such benchmarks are determined by the Basel II Framework, which is also referred to as the New Basel Capital Accord (you can find the agreement, in five different languages, on the web site of the Bank for International Settlements).

You can learn how the United States has implemented Basel II by referring to the FDIC's (Federal Deposit Insurance Corporation's) web site. In addition, you might be interested in this September 2008 Government Accountability Office (GAO) report: Risk-Based Capital: New Basel II Rules Reduced Certain Competitive Concerns, but Bank Regulators Should Address Remaining Uncertainties).

For more resources about banking, take a look at our guide.

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