The world of finance is almost as integrated today as it was in 1913.The catastrophy of World War I, however, set off events that hindered what some consider an inevitable march of history toward globalization. But today that phenomenon seems to be recovering.

To some, though, these "best of times" appear really more like August 1914-the prelude to WWI-except that current threatening forces are not imperial. Globalization may sound great, but integrated financial markets mean greater vulnerability to chain reactions that can threaten disaster from unexpected places. The collapse of Drexel Burnham Lambert in the late '80s, or, more recently, Barings are only two examples.

Since a domino-like financial collapse would mean disaster for everyone, the interests of the public and private sectors would seem to converge, but they do not. Despite calls from many quarters for increased regulation of international financial conglomerates, questions of how to supervise them, who would do so, whether a lead supervisor should exist, and how much national power central banks need relinquish have all conspired to moil the waters. This threatens an impasse that could impede globalization's renewal.

This being an essentially political issue, strange bedfellows have appeared. On April 29th, for instance, Federal Reserve Board chairman Alan Greenspan, speaking before the spring meeting of the Institute of International Finance (IIF), addressed the issue as directly as he seems able, concluding that " while many firms should reassess and upgrade the risk management procedures, and supervisors should improve their procedures as well, I do not believe that the need for radical change in our framework for the supervision of internationally active financial firms has been demonstrated."

This position agrees well with the IIF's "Report of the Task Force on Conglomerate Supervision," published this February, which also sees cause for more and better understanding of and communication between supervisors about the issue, but no need at this time for some international supervisory body that would interfere with the operations of its members-very large, internationally active financial firms. "I think he supported our position very clearly," says Barbara C. Matthews, the IIF's Banking Advisor and Regulatory Counsel.

The report suggests financial supervisors should consider creating a special supervisory arrangement for globally active financial firms; that this arrangement should initially focus on collecting information on common risk types present in the financial business; the home country supervisor for each globally active financial group should receive information (on such firms) and should use it to generate an assessment of the financial group's global risk profile; and financial firms should expand their financial exposures-and confidential regulatory reporting-to increase understanding.

In contrast, the mandate of the Joint Forum, a group descended from the Tripartite Group of Bank, Securities and Insurance Regulators, which has much input from the G-7 finance ministers, calls for creating some international regulatory mechanism that includes examining " the possibility of establishing criteria to identify a lead regulator and consider the roles and responsibility of such a lead regulator."

Similar problems are plaguing the approaching European Economic Union. Some say that of such small beginnings is history made.


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