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When a country’s banking sector becomes more linked to banks abroad, does it get more or less prone to a banking crisis? In other words, should cross-border banking linkages be welcomed? Or should they be approached with caution or perhaps even suppressed in some way? The recent global financial crisis has illustrated quite dramatically that increased financial linkages across borders can have a ‘dark side’: they can make it easier for disruptions in one country to be transmitted to other countries and to mutate into systemic problems with global implications. But financial cross-border linkages may also benefit economies in various ways. They can provide new funding and investment opportunities, contributing to rapid economic growth, as witnessed in many countries in the early part of the 2000s.
By SCOTT PATTERSON And VICTORIA MCGRANE Bankers, lobbyists and lawmakers from Wall Street to Washington scrambled to dissect, analyze and react to a leaked proposal for one of the most controversial elements of the Dodd-Frank financial-overhaul law: the "Volcker rule." Bloomberg News Paul Volcker: No comment until the final version is released. Billions of dollars are at stake for big banks, which have been working for months to shape the rule aimed at curbing risky trading activities that played a part in the financial crisis. The latest frenzy erupted late Wednesday when a website posted a 205-page draft of a memo, dated Sept. 30, that laid out critical elements of the proposed Volcker rule.
The world over, investors and individuals spend time and energy trying to divine the thinking of central banks in order to anticipate their moves. However, this is not easy; central banks tend to be notoriously cagey. Till not long ago, some deliberately shrouded their thinking in secrecy, denying the private sector opportunities to gain better understanding of their policy decisions. Recall Alan Greenspan's famous, 'If you understood me clearly, then you must have misheard.' More recently, however, central banks have been moving toward greater transparency. For two reasons.
Stern on Finance is a site dedicated to the understanding of financial markets, financial institutions, and how they interact with the economy. It is maintained by the faculty of the Leonard N. Stern School of Business at New York University. This site will provide fundamental knowledge about financial economics. See our blog for up-to-date analysis of financial events: Stern on Finance - The Blog About this site This site is developed by Professor Thomas Philippon from the Finance Department of the Stern School of Business.