Bank internationalisation, risk transference, risk management

Christopher Carr, R. Ul-Haq, J.B. Howcroft

Research output: Contribution to journalArticlepeer-review

Abstract

This article considers bank internationalisation since 1946 and documents the mechanisms for this irreversible internationalisation. We welcome the value created and the major increase in global GDP over the period as a result. The nature of infrastructure firms/alliances in enabling socially useful banking activities and further transferring trading risk across national borders is discussed.

The authors assert, as is the regulatory trend in the EU and the USA post the Dodd-Frank (2010) act, that whenever possible, trading involving financial instruments should be on organised exchanges that monitor the counterparty risks, net it where possible, and hold collateral against it. Central Banks must stand behind the organised exchanges for the net exposure as lender of last resort, and in return are supplied with the necessary information.

In the period between the overhang of over-the-counter derivatives (in particular) and the transfer to exchanged traded derivatives, we propose a review of the methods for managing trading transactions risk across national borders, in particular the negative effects of unknown outstanding risk to the macroeconomic institutions in the management of risk in the economy, whilst enabling the positive impacts of trading.

One way to gain this country specific aggregate data is to request the infrastructure platforms that provide the mechanisms for trading specific instruments to provide the aggregate data of net-instrument exposures on a six monthly basis to the regulator responsible for macro-economic management – The Bank of England – to inform its views on the economy in general. This aggregate data would be without providing the individual banks exposures which are reported by the bank through the regulatory process. This in turn will lead to The Bank of England, and further HM Treasury, being able to quickly quantify the aggregate traded instruments risks that exist in the UK macro-economy.
Original languageEnglish
JournalEuropean Financial Review
VolumeApril/May
Publication statusPublished - Jan 2012

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