Limits on cross-border banking?
We can expect lawmakers to impose new controls on the finance sector in their attempt to prevent a repeat of the current meltdown. One change I’m predicting is heavy regulation on cross-border banking. Capital Chronicle alerted me to this chart from a Financial Times article headed “Are European banks too big to fail?” It shows the leading European banks ranked on their size relative to their home country’s GDP.
I’m expecting regulatory moves toward water-tight compartmentalisation between mainstream banking operations in different countries. That will limit credit availability to over-spending nations. Not a bad thing if it limits house prices, you say, but try telling that to businesses unable to shift their goods, and their laid-off workers. Governments hoping to borrow internationally for infrastructure investment may be ok, but what about companies planning major investments? Regulators will have to watch that they don’t go too far, and throw the baby out with the bathwater.
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