WASHINGTON -- Long a rampart for big U.S. and foreign banks during the decade-long Third World debt crisis, the Institute of International Finance, based here, is reengineering its mission.

Instead of delving into complex calculations on how much debtor countries can afford to pay their creditor banks, the institute is turning its attention to global regulatory issues.

"It's increasingly clear to me that the institute can have value if we serve as a forum on regulatory issues that need a global perspective and common approach among banks around the world," says Charles H. Dallara, managing director of the Washington-based association.

Simply put, if regulators from around the world get together to decide common capital standards and rules for banks, then banks should have a group to represent their common interests.

"The basic premise is that if regulators and central bankers are going to try to draft regulations in a coordinated fashion, then the private sector should also coordinate its actions," Mr. Dallara says.

Adds Harry Tether, vice president at Chase Manhattan Corp. in charge of the bank's developing country debt portfolio: "The institute clearly needed to revitalize its mission as the debt crisis faded out. What's obviously of interest is their policy making role in representing their membership."

To date, the institute has already made its mark on several fronts. It has issued comprehensive reports on what banks feel is a sensible approach to capital guidelines for market risks.

And derivatives are the next item on the menu, Mr. Dallara says.

As part of its effort to help devise guidelines banks can live with, an institute task force comprised of 18 member banks, with some of the world's biggest derivatives trading operations, recently issued its own set of proposals and recommendations for assessing trading risks and transparency of derivatives transactions.

Among the institute's key recent efforts was a call for greater disclosure of information on derivatives transactions to reduce market risks.

"We're the only association that attempts to do this across national boundaries," Mr. Dallara noted. "We're the only group that takes a global perspective for banks."

That's not to say that the institute is tossing away its traditional role as the defender of commercial banks' interests vis-a-vis debtor countries.

Quite the contrary, the 182-member group is exploiting more than 10 years' worth of expertise to help member banks assess the opportunities and risks of their expanding operations in emerging financial markets in Latin America, Africa, and Asia.

The reason: big U.S. and foreign banks, Mr. Dallara explains, are again extending export credits, medium term lending, project finance, and trade finance to developing countries.

These banks are also actively involved in underwriting debt and equity for those same countries and are increasingly trading in local financial instruments.

"We still have our focus on emerging markets," Mr. Dallara emphasizes. But in contrast to a few years ago, when we took a rather limited focus, we've expanded our coverage to a broader range of businesses in markets that require risk management."

That, he adds, means taking into account how issues like trade, regulatory actions, deregulation and political events all influence the risk involved in investing or doing business in emerging markets.

"We don't try to be experts in calling the market," Mr. Dallara says. "What we try to do is provide sound, objective assessments and analyze the links between regulatory issues and local markets."

Much of the institute's credibility, he points out, comes from the fact that unlike investment banks or investment funds that supply the bulk of the research on developing markets, the Institute has no vested business interests in the markets it covers.

Set up in 1983 to represent the interests of Western commercial banks which were restructuring their loans to developing countries, the institute has been slowly but steadily expanding its mandate.

Once heavily dominated by 18 U.S. and European banks, it has also worked on diversifying its membership. Its ranks now include a broader range of banks, from forty countries around the world.

The Institute has also deepened its contacts with central banks, and with multilateral lending agencies such as the World Bank and the International Monetary Fund.

This might seem odd, since banks finance private projects and multilateral lending agencies finance public initiatives.

Both groups were also, for many years, on opposite sides of the fence during debt restructuring talks, since multilaterals had preferential lending status and were guaranteed repayment on any funds they lent to developing countries, while banks did not.

But as Mr. Dallara emphasizes, closer links are logical because both banks, international financial institutions, and central bankers all share a common interest in promoting a stable economic environment in fast growing markets.

In addition, the growing involvement of multilateral lending agencies in financing private investments and the need for banks to get some sort of guarantee that their lending will not fall prey to currency or price controls, makes an alliance natural.

"It's symbiotic," says Mr. Tether. "They need our knowledge on private lending and we need their influence on regulatory issues."

In a measure of the Institute's growing clout, 20 banks have joined so far this year, from as far afield as Turkey, Slovenia, India, and Thailand.

Investment funds, industrial corporations and investment banks have also joined as associate members. Among them: Soros Fund Management, Lehman Brothers and Asea Brown Boveri.

Mr. Dallara says the growing involvement of investment funds and industrial corporations in emerging markets makes them logical candidates for membership.

Many, he points out, are now funneling hundreds of millions, if not billions of dollars worth of investments in emerging markets, often through young fund managers who have no experience investing outside the United States or memories of the problems banks ran into barely 10 years ago.

"They don't have any institutional memory of the debt crisis," Mr. Dallara points out. "And their leadership basically grew up in the domestic market."

The Institute offers its members detailed economic data and financial analysis from more than 25 countries. But this does not come cheap. Banks, depending on their size, pay anywhere from $20,000 to $120,000 in annual fees.

But many believe, as one banker says, "the data on emerging markets alone is worth the fee."

And when it comes to handling global regulatory issues and assessing emerging market risk, the 46-year-old ex-assistant secretary of the Treasury and former J.P. Morgan & Co. banker is about as well versed as they come.

Born and raised in Spartanburg, N.C., Mr. Dallara became U.S. executive director at the International Monetary Fund after earning a doctorate in philosophy from Tufts University.

Before his stint with the IMF, he spent four years with the U.S. Navy in Asia and the Mediterranean.

As assistant secretary of the Treasury during the 1980s and early 1990s, Mr. Dallara played a key role in engineering billions of dollars worth of debt reduction agreements between commercial banks and debtor countries.

He subsequently joined J.P. Morgan in 1991 as a managing director assigned to handling complex deals around the world.

The grueling pace at Morgan, where he spent more than 60% of his time traveling, as well as the opportunity to run an organization that "mixed deal-making with major policy issues" prompted him to accept the institute's offer to become managing director in August last year.

Mr. Dallara says he does not regret the time spent at Morgan but adds that "after going from deal to deal, I missed delving into the broader policy issues."

A passionate baseball fan who spent his childhood summers with his grandparents in the Bronx, Mr. Dallara says his biggest regret about leaving the New York area is not being able to hop over to Yankee Stadium as often as he would like.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.