International Law by Other Means: The Twilight Existence of International Financial Regulatory Organizations

Abstract

DAVID ZARING^ I. INTRODUCTION This article seeks to shed light on a major question of international law by examining a narrowly defined group of participants in international life. The question is, How do relevant international rules develop? Given the insolvency of the United Nations, the agonies of European unification, and the controversies surrounding the expansion of regional entities such as NAFTA, ASEAN, and NATO, one might be excused for harboring some pessimism concerning the future of the best known fora for international cooperation. That pessimism is augmented by the intuition that international laws are easy to break, even if they are not broken all of the time.1 This article, however, is optimistic about the future of international cooperation because that cooperation is blossoming among the world's regulators. One multibilliondollar global regulatory scheme promulgated by banking regulators and examined in this article may serve as some evidence of that blossoming. But regulatory cooperation not only matters because of its effect on international life, but because it is a new and increasingly important way that international rules develop. The regulatory cooperation studied here-involving banking, securities, and insurance regulators-is not the product of state arrangement, but of international agreement among domestic regulatory agencies that claim to be working for themselves, rather than for their governments.2 I have selected international financial regulatory cooperation as an example of the broader phenomenon of regulatory cooperation in international society because the financial sphere is composed of organizations with diverse ages and memberships,3 has enjoyed tangible successes,4 and has recently attracted the attention of a number of observers of the international scene.5 Three international financial organizations and their activities exemplify this new phenomenon of international regulatory cooperation across borders. The Basle Committee on Banking Supervision (Basle Committee), founded in 1974, consists of representatives of twelve central banks that regulate the world's largest banking markets.6 The Basle Committee seeks to create common standards of banking oversight. The International Organization of Securities Commissions (IOSCO), a decade-old organization of securities commissions, consists of representatives of over 100 of the world's securities regulators and pursues a similar sort of harmonization for the world's security rules. The newest of the organizations, the International Association of Insurance Supervisors (IAIS), first met in 1994. It consists of representatives from almost 100 of the world's insurance regulators interested in the international coordination of their activities.7 The Basle Committee, IOSCO, and IAIS are leading an administrative response to the dramatic globalization of the economy. This globalization is exemplified by the growth of the banking industry. For example, the banking assets of foreign branches of U.S. banks grew from $3.5 billion in 1960 to $378.8 billion in 1990.8 Likewise, foreign banking activity accounted for 22.9% of total U.S. banking assets in 1990,9 up from 15.2% in 1982.10 International banking has thus developed from a relatively unimportant sideline activity of a few major institutions to an important financial activity that accounts for a significant portion of the assets of a number of large banks. Similar changes have occurred in the international securities and insurance markets. The value of transactions in stocks and bonds of all types involving parties residing in different countries increased fourfold during the mid-1980s,11 while American reinsurers doubled the premiums they earned from foreign clients during that decade.12 However, as financial transactions become easier to make transnationally, the specter of financial institutions migrating to countries with lax regulatory regimes and thereby damaging the safety and soundness of financial markets elsewhere becomes, at least to regulators, more real. …