Global regulations: Making banking and economies safer across the world
Post World War II, there was growing globalization of financial intermediation. This occurred slowly but steadily, as exchange controls and other direct restrictions on financial flows were removed or eroded and as international communication improved.
Financial markets and intermediation became international monetary control and regulatory systems and remained national. So there was a need to establish communication networks among national authorities, where common problems could be discussed and cooperation could be sought, perhaps leading to policy convergence.
This need grew even more after the Bretton Woods system for managing foreign exchange broke down in 1973. Its reverberations were soon felt. In 1974, there was a problem in Germany due to over-leverage in a bank. In the same year in the U.S., the Franklin National Bank of New York also had to shut its shop after huge foreign exchange losses.
So, in the beginning of 1975, in response to these and other disruptions in the international financial markets, the central bank governors of the G10 countries established the Committee on Banking Regulations and Supervisory Practices.
This committee was later renamed as the Basel Committee on Banking Supervision (or BCBS). The committee’s prime objective was to be a forum for regular cooperation between its member countries on banking supervisory matters. It also aimed to enhance financial stability by improving the quality of banking supervision worldwide.
The committee aimed to achieve these goals by setting minimum supervisory standards, by improving the effectiveness of techniques for supervising international banking businesses, and by exchanging information on national supervisory arrangements. All types of banks like JPMorgan (JPM), Wells Fargo (WFC), Morgan Stanley (MS), Goldman Sachs (GS), and other banks in an ETF like the Financial Select Sector SPDR Fund (XLF) were to adhere to these norms.