International Banking Systems - Understanding World Geographic Variation

The international banking systems can be confusing to sort through. With different regulations and restrictions in each country, conducting cross border banking transactions can become a hassle. Not all countries have a stable banking system, and others are quite sophisticated. Here are a few things to know about international banking.

A Bank by Any Other Name…

Even the word ‘bank’ can mean many different things when we start looking at banks from a global perspective. In the United States we are used to our banks doing much more than just holding our money. We can get loans, invest our money, pay our bills, track money online, among other things. In some countries without the sophisticated banking system we have you can only perform very simple transactions. Others are simply for loans.

Bank Transfers

Bank transfers are generally fairly smooth transactions when performed domestically. Sometimes transfers to other countries can be a little more difficult. Most banks will only transfer to banks outside the U.S. if the cross border bank can meet or exceed the originating banks regulations. Regulations vary greatly from country to country when it comes to banking, and this can make things slightly hairy when you start transferring money to countries with looser regulations.

Governing Parties

The Bank for International Settlements is an organization of banks which works to foster international monetary and financial cooperation. They serve as a bank for all central banks. Since the BIS isn’t accountable to any government in any nation it works through subcommittees. The BIS also provides bank services to other central banks. The main goal of the Bank for International Settlements is to maintain a predictable policy for all the central banks. This helps to keep everything with international banking smooth and easy to understand. They also set minimum standards regarding the capital/asset ratio. This protects all the banks in the system. It is important to note that just setting standards  and monitoring them doesn’t equal complete safety.

The BIS has set a reserve policy in place to ensure that all central banks ensure liquidity to limit liability on the global economy. This reserve reduces the risk of bank runs. This is a little more difficult since this is based on the local economy and conditions. For example, a reserve in a rural bank that is mostly made of the agricultural trade may be required to keep a reserve of 6% while the rest of the country may be held to 7%.

What Does This Mean to You?

International banking doesn’t have to be as dangerous as it once was. If you hold money in domestic and international banks you are pretty safe in doing so as long as the regulations of the BIS are held up. You still need to take some caution when it comes to these transactions though. No method is fool proof.


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