This paper quantitatively examines the macroeconomic and welfare effects of macroprudential policies in open economies. We develop a small open economy dynamic stochastic general equilibrium (DSGE) model, where banks choose their funding sources (domestic vs. foreign deposits) and are subject to financial constraints. Our model predicts that banks reduce leverage in response to a macroprudential policy tightening, but increasingly rely on foreign funding. This endogenous shifts of funding composition significantly undermine the stabilizing effect and welfare gains of macroprudential policies. Our results also suggest macroprudential policies are less effective in financially more open economies, and optimal policy should take capital flows into consideration. Finally, we find empirical support for the model predictions in a group of developing and emerging economies.

The City of London has long attracted much academic and popular attention. However, little research has been done on the relationship between the City and the European Economic Community in the 1970s and 1980s, despite the accession of the United Kingdom in 1973. Based on archival material from central and commercial banks in the UK and France, this article explores the relationship between the City and the EEC, from the accession of the UK to the EEC in 1973 to the Maastricht Treaty in 1992, which was meant to be the year of the completion of the single financial market. The article explores two areas: the influence of the City on EEC financial regulation, and how this influence was exerted. It pays particular attention to two committees chaired by the Bank of England, the City Liaison Committee and the City EEC Liaison Committee, and to British banks. The article argues that if the EEC played a part in the formalisation of British banking regulation, the City also played a key role in shaping EEC plans for financial regulation.

Offshore financial centres have attracted considerable critical attention over the past few decades as havens for lightly taxed funds that circulate outside the regulatory oversight of major financial centres. This article addresses the emergence of an offshore market in US dollars in Singapore from the late 1960s using a range of archival sources to identify the motivations of the host, participant banks and regional rivals. The development of the Asia dollar market is particularly striking because Singapore was not the most likely venue for an Asian offshore financial centre. The main regional financial centre was Hong Kong, but the Hong Kong authorities made a deliberate choice not to host an offshore market in Hong Kong, a decision that was initially supported both by the state and by incumbent banks, although the banks later changed their view as the Singapore market grew. This case thus opens up discussion of the influence market actors exert over regulators when they are engaged in regulatory arbitrage as well as regulatory competition between states. Evidence is also presented about the efforts of the Bank for International Settlements to encourage greater transparency in offshore financial centres in the 1980s.