Potential Risks of Liberalisation of Financial Services

Potential Consequences for the International Financial Markets

During the current GATS negotiations on liberalising financial services, the benefits of a strengthened financial system have been highlighted, while the risks of increased instability have been underestimated, especially by the Northern countries. This paper has identified several ways in which liberalisation of financial services can contribute to financial instability. In order to address this increased risk of instability, an appropriate regulatory and supervisory framework for banking, insurance and securities is required. Developing countries often lack the capacity and resources for such necessary safeguards. Therefore there should be much more open public and political discussions linking the degree of liberalisation requested by the EU and the degree of regulation and supervision already in place to deal with new financial service providers and their services. No commitments should be made in this area during the bilateral GATS negotiations, unless there is full guarantee by both sides that the necessary safeguards are in place, nor should the EU insist on any such commitments. read more less