As financial corporations expand beyond national borders and cross-border economic relationships make national boundaries more permeable, there are some that believe that an international economic regulatory body is necessary. Especially with the recent economic crisis rapidly becoming a global crisis, countries with less economic influence want to be ensured that they have some protection against suffering the consequences of the economic decisions of more economically powerful nations.
This year, the G-20, a group of the 20 most influential economic nations in the world, discussed this very issue, and came up with the Financial Stability Board (FSB), which would act as a global forum to promote financial stability and protect against the global spread of systemic risk in financial institutions.
Recently, this group has created a list of thirty international financial institutions that are seen as international institutions which could pose a systemic risk to the world economy. While the list is not public, it is relatively easy to determine which large financial institutions with cross-border activity are the ones with the most influence on the global economy.
According to the Financial Times, the US banks on this list are:
- Goldman Sachs Bank USA
- JP Morgan Chase
- Morgan Stanley
- Bank of America®-Merrill Lynch
Of course, as with any international regulatory commission, the FSB does not have any formal means of enforcing its policies, and will most likely rely on consensus through treaties or simply function as an advisory body for the International Monetary Fund (IMF).
This month, the FSB has asked that the 30 banks on the list write “living wills” that will be documents which outline what actions will be taken by the bank if it were to find itself in a crisis type situation. They also have agreed to set up supervisory colleges that will consist of regulators from each country where one of these banks is based, in order to better supervise the process.
Some institutions have complained that it is impossible to write this kind of document without knowing the details of what the future crisis would be, as there are too many possible scenarios and solutions that could occur.