9
have had to weigh two conflicting goals in deciding how and to what degree they would
open their financial services industries to foreign companies.
8
On the one hand, well-known benefits of economic internationalization are in
some ways similar for national financial services as for other industries – enhanced
domestic competition, larger markets for internationally competitive national firms, the
spreading of innovation and better uses of resources.
9
The integration of national
financial services also brings benefits special to the industry, at least in the case of rich
countries. As manufacturers expand their operations, services and marketing to other
countries, internationalization of financial services industries allows them to continue
long-nurtured national banking relationships in other settings. On the other hand,
financial services industry is a strategic sector, and policymakers and regulators have two
good sets of reasons for being cautious about how and to what degree they integrate
national financial services industries. The first stems from the economic importance and
the international competitive advantages of having a vibrant national financial services
industry and the fact that financial markets in many sectors can migrate quickly in the age
of fleet-footed capital and split-second electronic transactions.
10
The industry’s importance to rich economies cannot be overstated. Financial
services companies contribute to economic prosperity by providing large numbers of
well-paid, non-polluting jobs and purchasing large amounts of high-tech electronic
8
There is a large literature about the causes and direction of financial regulatory reform. See, for example,
Cerny 1989; Moran 1991; Sobel 1994; Vogel 1995; Loriaux, Woo-Cumings et al. 1997; and Laurence
2001.
9
For estimates of the benefits from deeper integration of transatlantic financial services industries, see Steil
2002.
10
The story of the Eurobond market, for example, in which US regulations sent activity to London,
continues to haunt American policymakers. Interview with senior staff officials of Committee on Financial
Services, US House of Representatives, Washington DC, May 6, 2004. A more recent example is the
German government bond future market which migrated to the German-Swiss derivatives market, Eurex,
from London’s Liffe.
Convention