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This chapter identifies the City of London as occupying a place at the very centre of international banking over the space of two centuries. London’s success is seen to rest on the combination of a highly successful money market cluster and a network that linked it to banks from around the world. Initially, preferential access to this market only allowed British overseas banks to expand successfully overseas from the mid-19th century onwards. However, over time foreign banks were able to access this market and so challenged the early dominance of British banks. As a result London became the payments centre for the world economy, which further enhanced the attractions of its money market for banks from around the world. The diversity of Asia provides an excellent case study for the study of this relationship. Asia contained countries that were tied to Britain through the Empire, notably India, along with countries that had a semi-detached relationship, like China, or were fully independent as with Japan. Though this is important what is also shown to be significant is the way particular banks connected to London, as this had implications long after the era of European empires passed. This calls into question the whole debate on ‘gentlemanly capitalism’ and the Eurocentric perception of imperial history.

This chapter examines the theoretical framework of international soft law and how it embraces both legally nonbinding and binding rules and standards of international financial regulation. International soft law is defined as legally nonbinding standards, principles, and rules that influence and shape state behavior but do not fit into the traditional categories of public international law of legally binding general custom of states and bilateral or multilateral treaties. It is argued that international soft law in its various dimensions can contribute to an understanding of the development of legally relevant international financial norms and how they govern state regulatory practice.

This chapter looks back to the 1980s and at how the international community addressed the debt crises of countries that were primarily indebted to international commercial banks. It describes how the initial policy, which emphasized concerted refinancing of obligations as they fell due, was superseded in 1985 by the ‘Baker Plan’, which sought multi‐year relief packages and focused on fifteen countries in which the major banks had large exposures. The delayed recovery of the debt‐servicing capacity of the debtor countries was no longer ascribed to the global recession of the early 1980s, but to the ‘structural’ problems of the debtor countries. This now required greater World Bank involvement, ‘structural adjustment’ lending, and longer‐term debt rescheduling. However, economic recovery resisted these efforts too.

The first international banks to appear in Asia were British. On the one hand were banks established in London, or who moved their head office to London. On the other hand were those who were formed in Asia by the European, mainly British, expatriate community and then retained their head office there. In the past these two groups have been treated as identical. However, what this chapter reveals very clearly is that this is not the case, as the comparison between the Chartered Bank and the Hong Kong and Shanghai Bank shows. In an age of imperialism before 1914 it might have been expected that the bank with the London head office would possess all the advantages. That was not the case because a local head office made the process of decision making faster and also removed the problem of having assets and liabilities in different currencies. It was thus HSBC that became the major force in Asia rather than the Chartered Bank. Despite the problems that it experienced in Asia between 1914 and 1945 it was also HSBC that was best placed to benefit from the renewed economic growth in Asia rather than the Chartered bank, which had to re-invent itself after the Second World War.

Hong Kong has been roundly praised as a free market paradise, ideal for the attraction of unfettered capitalist exchange, providing a natural environment for a thriving international financial centre. This chapter seeks to establish the strengths and weaknesses of the IFC in Hong Kong in the period before China’s Open Door Policy was launched in 1978, with particular focus on the regulatory environment and the range of activity. Measuring Hong Kong’s international financial flows has been hampered by the lack of official statistics and this chapter presents new data gleaned from archive sources. The evidence shows that while Hong Kong was the major regional banking centre in Asia, it was also deficient in some key elements of an IFC and the regulatory environment could be a hindrance as well as an aid to international banking and finance.

Chapter 3 first analyses the business model of international banks. Next, it documents the rise of international banking, both within the major regions and between the three regional blocks. It is found that international banking is most advanced in Europe and least in Asia. The Americas take an intermediate position on the internationalisation scale. The Chapter also documents the degree of internationalisation of the large global system banks. The Financial Stability Board, the newly emerged body dealing with international financial stability, has produced a list of 29 global systemically important banks (G-SIBs), which face higher regulatory requirements. The Chapter confirms that all large and internationally operating banks are on this list.

International financial centres are of key importance for the activities which are the theme of this book. Centres are based on the grouping of a number of financial services which provide intermediation between a surplus and deficit of capital. The chapter deals primarily with London, the world financial centre 1870–1914, and with New York, which was its rival in the 1920s. It identifies a number of factors of crucial importance for the development of international centres, including political stability, the availability of satisfactory financial information and appropriate, adequately regulated institutions. The economic power of the host country and the impact of war are also significant for centres’ status. The chapter suggests that financial centres were implicated in imperialism both for countries at the imperial centre, which benefited from investment, and those at the periphery whose borrowing has been argued to have subjected them to informal domination.

Chapter 5 develops some model-based solutions to the financial trilemma. International governance mechanisms for coordination include supranational approaches, where an international institution takes over from the nation states. An alternative approach is burden sharing under which national governments pre-commit to share the burden of an international bailout. To curtail the moral hazard of an international safety net, the Chapter proposes to apply the new capital surcharge for the global system banks (the so-called G-SIBs) to all banks that would fall under the proposed safety net. Higher capital reduces the incentive for excessive risk taking. Moreover, there should be effective resolution plans for these banks.

This chapter discusses the interconnected nature of cross-border banking between European Union (EU) Member States in terms of counterparty credit risk exposure at both country and institutional level. The Bank for International Settlements (BIS) consolidated data shows how inflows and outflows of loans and deposits are impacted by events over time. The potential impact of the bank legal form is also important: significant assets held by a branch, as opposed to a subsidiary, lead to different levels of exposure to the home and host Member State. The chapter then shows that cross border banking integration across the EU Member States is not homogenous. The size of the foreign bank presence in each Member State is distinct and can potentially give rise to the risk of contagion. Notably, the size of branch presence rather than subsidiary presence in a respective member state offers an indication of the extent it’s financial system is exposed to systemic spillovers from either the home or host state.

After recurrent crises with severe consequences in the 1990s and early 2000s EDEs have become even more closely integrated into what is now widely recognized as an inherently unstable international financial system. This chapter discusses the factors accelerating global financial integration of EDEs, including monetary policies in major advanced economies, notably the United States. It examines capital inflows and outflows, external balance sheets, the size and composition of gross external assets and liabilities, distinguishing between equity and debt, private and public sectors, local currency and foreign currency debt, bond issues and bank loans, and cross-border and local lending by international banks. It provides data and information on the currency composition of external debt, and non-resident participation in domestic financial markets of emerging economies. These are used to identify the changes in the depth and pattern of integration of emerging economies into the international financial system since the early 1990s.

This chapter examines the ongoing revisions to Basel 2, the international standards for banks' regulatory capital developed by the Basel Committee on Banking Supervision (BCBS) to replace the 1988 Basel Capital Accord (Basel 1), and their implications for developing countries. The 2006 text of Basel 2 had been considered closed before the credit crisis which began in mid-2007. This crisis has indicated major shortcomings in the regulatory framework for financial institutions which are now the subject of an agenda of wide-ranging reform. Strengthening Basel 2 is an important item on this reform agenda. This chapter considers two of the major subjects of the revisions of Basel 2: the rules for securitization exposures and the Market Risk Framework. It argues that the Basel 2 rules may engender new problems in the future, citing the possibility that banks may be exposed to risks associated with cross-border asset-backed investments as well as investments linked to operations in their own financial markets.

This chapter sketches the role of foreign banks opening branches, joint ventures, and representative offices in China over the past decade. Although their market share is only 2%, they have played an important role in technology transfer and in introducing more sophisticated products to the market. The largest and most successful of the foreign banks has been HSBC, due to its well-conceived China strategy and excellent relations with the financial authorities. Chinese banks are now expanding overseas in support of the government’s policy of “going out.” Chinese banks are expected to support Chinese investment overseas. They are limited in experience and capabilities for international expansion at this time, and so are cautious.

This chapter complicates the widely accepted view that the postwar international monetary system was defined by “embedded liberalism”—the belief that national economic growth needed to take priority over international monetary stability. The late 1950s and early 1960s was a critical period of debate within the international organizations of international economic governance over the question of what the appropriate relationship should be between economic growth and balance of payments equilibrium in an increasingly liberal global economic environment. Embedded liberal ideas had to fight for space against the orthodoxy of classical liberalism within key intergovernmental organizations of postwar international economic management.

The World Economic Conference convened by the League 1933 lies at the heart of international efforts to combat the depression. It was called by the British and French governments, acting in concert with the United States, to combat the crunching impact of the financial crises of 1931, and to further negotiations on international war debts and the reparations settlement reached at the Lausanne Conference of 1932. The League played a crucial, yet hidden, role in facilitating the extensive preparatory meetings for the conference. The secretariat's ground work clarified national positions but also revealed that states' priorities differed so markedly there was no obvious policy territory on which agreement could be built before the main event. It shows how the secretariat promoted the temporary stabilization agreement that culminated in FDR's infamous ‘bombshell message’, and proposals for a tariff truce and negotiations premised on the anticipated US Reciprocal Tariff Agreement Act.