SUBJECT: REGULATORY REGIME IN INTERNATIONAL BANKING

TRANSACTIONS WITH REFERENCE TO INTERNATIONAL LOAN

AGREEMENTS.

SUBMITTED BY:
NEHA BALODHI (2015- LL.M.)
ROLL NO-30

SUBMITTED TO: PROF. V. BALAKISTA REDDY

PROFESSOR OF LAW, NALSAR UNIVERSITY OF LAW

NALSAR, University of Law, Justice City, Hyderabad

ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my professor V.

Balakista Reddy ,who gave me the golden opportunity to work on this
enlightening project, which also helped me in doing a lot of Research
through which i came to know about so many new things for which i am
really thankful to him.
I would also like to thank my parents and friends who helped me a
lot in finalizing this project and guided me throughout the project.

INDEX

Sr. No.

Content

Page No.

1.

Index Of Authorities

4-5

2.

List of Abbreviations

3.

Research Methodology

4.

Chapter 1 : Introduction

8-16

5.

Chapter 2 : Regulatory Framework

17-18

6.

Chapter 3 : Legal Issues in International Banking

Transactions

19 21

7.

Chapter 4 : International loan agreement/s

22-23

8.

Chapter 5 : Conclusion and suggestion

24-25

9.

Bibliography

26

Index of Authorities
1) Acts:
Foreign Exchange Management Act

2) Regulations:
RBI master circular on Forex

3) International authorities:
BIS guidelines
BASEL Concordat

Precedents Odegen v Odgen, 1908.

Huber v Steiner ,1835.

List of Abbreviations
1)
2)
3)
4)
5)
6)
7)

RBI : Reserve Bank of India

Forex : Foreign exchange
BIS : Bank of International Settlement
FEMA : Foreign Exchange Management Act
FERA : Foreign Exchange Regulation Act
IMF : International Monetary Fund
USA : United States of America

RESEARCH METHODOLOGY

Statement of Aims:

The paper primarily aims at showing the evolution of international banking

transactions and what are current limitations and reforms needed under Indian law.
SOURCES:
The methodology used in purely doctrinal in nature with primarily based upon
primary and secondary sources.
RESEARCH QUESTION:
The paper examines and analyses the following:
1) To present the emergence of international banking transaction in the
present world.
2) To provide the law governing in international transactions.
3) To present the clauses in international loan agreement.
SCOPE AND LIMITATIONS:
The paper contours around the present laws which are currently under developing
stage. The limitation is the lack of availability of examples of specific case laws.

CHAPTER I: Introduction

International markets, offer prospects to the traders and corporate and multinational
companies, to magnify their business, across diverse parts of the globe. International
investors sightsee more investment avenues for their investments. The international
markets in the financial sector offers a wide range of opportunities for expansion of
trade and financial activities athwart the borders of nations.

This has led to numerous conferences, treaties and establishment of international

banks such as IMF and BIS.
International Banking can be defined as a sub-set of commercial banking
transactions and activity having a cross-border and/or cross currency element.
Multinational banking refers to the location and ownership of banking
facilities in a large number of countries and geographic regions. International
banking comprises a range of transactions that can be distinguished from purely
domestic operations by
(a) the currency of denomination of the transaction,
(b) the residence of the bank customer and
(c) the location of the booking office.1

Legal issues linked with international banking transactions rise due to association of
more than one law/ s of different countries. Due to numerous reasons, even in a
simple two party loan agreement a number of different legal systems may be
involved.
The paper presents the legal regime on international transactions as well as the issues
prevailing with it and with suggested reforms.

International Banking features:

Expansion: International Banking supports traders to enlarge their business and
trade activities beyond the limitations of a nation. Economic growth and conducive
climate for carrying out the business activities in new nations are the aspects because
of which many enterprises are looking outside the borders of their own countries for
1 https://www.icsi.edu/docs/webmodules/Publications/9.1%20Banking%20Law
%20-Professional.pdf

their business growth. Competitive rewards in respect of price, demand and supply
factors, future growth occasions, cost of production and operating costs, etc., are
some of the other significant factors for expansion of international trade and finance.
In this view, the presence of banks across the nations has led to the growth of
international banking.
Legal and Regulatory framework: Elastic legal and regulatory structure inspires
traders and investors to enter into the international markets. Quick approval to set up
business, less complex compliance requirements and constant political situations
help many new players to enter into a number of nations to expand their activities
Also, due to lesser tax rates or no taxes to be payable, certain tax havens play
significant roles as off shore banking centres which encourages many international
banking units to open their branches in such off shore centres.
Cost of Capital: The operating efficacy of an enterprise depends upon the average
cost of capital.
Many companies enter into new evolving markets to take advantages of the lower
cost of capital in such markets. Banks as a financial intercessor play a vital role as
source of funds.
Banks through their professional skills take benefit of the arbitrage opportunity in
different international markets and increase their profits.
Current account and Capital account transactions: Banks play key role in export
and import trade.
By providing different types of financial and non-financial backing, banks aid
enterprises, corporate clients and individuals steering business in different countries,
by extending trade finance and investment opportunities. Banks also enable
movement of funds (inward and outward remittances) through their network and
correspondent banking provisions.
Risks: Different risks concreted ways for diversification, so the global investors
look for alternative ends to invest their savings with twin objectives of safety of
funds and better returns. In view of their presence in different time zones,
international banks also face various risks.2

2 https://www.icsi.edu/docs/webmodules/Publications/9.1%20Banking%20Law
%20-Professional.pdf

Evolution of International Banking

International monetary system witnessed many fluctuations over centuries.
Originally the barter system was used as a standard of exchange to settle receipts and
payments, on description of economic activities. Different items like precious stones,
gold, paper, etc., have been used as currency. Two important events which occured in
international financial markets throughout the last century (20th century) are: fruition
of the Gold Standard System, both the Fixed and Floating exchange rate system.
Gold Standard System:
This system was working till the First World War. The gold standard system was
founded on the value of gold and subject to the value of gold held by the
government/monetary authority. Over the years, multiple types of gold standards
were practiced. There were gold specie, gold bullion standards and gold exchange
system.
Gold Specie Standard:
Under this scheme actual gold coins and/or coins with fixed contents of gold were in
circulation.
This system operated subject to certain conditions like:
(i)
the governments declare that the gold was the currency for exchange
goods and services
(ii) value of gold coin was same as value of gold content in it
(iii) gold could be freely exported and imported
Gold Bullion Standard:
This system was introduced by USA. Under this system the monetary authorities
held stock of gold. Currency in circulation was a paper currency. The currency was
pegged to gold, and was unconditionally convertible to gold, on demand. The gold
quantity per currency note was fixed by the issuing governments.
Gold Exchange Standard:
Under this scheme, as promised by the monetary establishments, currency was
exchangeable for another currency at a specific ratio. Alternative currency, with
which it was pegged, was called as reserve currency. In view of their supremacy in
the international markets, US Dollar or British Pound was used as reserve currency
by many countries. These reserve currencies were convertible to real gold as in the
case of gold bullion standard.
Gold Standard System Significant features:
Monetary authority/Government was permitted to issue currency only against
adequate quantity of gold.

 Exchange rates were grounded on the ratios of gold quantity held against each
currency; consequently gold equivalence was not subject to regular changes. From
the above view, this system safeguarded fixed exchange rates.
Limitations - The monetary authority/governments were to stay ready to convert
unlimited amount of paper currency to gold at any time.
The issuance of the legal tender was subject to the condition that the issuing
authorities should hold exact quantity of gold in reserve, and in if the quantity
reduces, the authorities should reduce the notes in circulation.
Many countries faced hitches in maintenance of gold parity (ratio) due to
numerous reasons comprising political and unforeseen circumstance like war, natural
calamities, etc.
In view of the scarcity of supply of gold, it became problematic to continue the
system.
Bretton Woods Conference
The first half of the 20th century watched many concerns, like the First World War,
1929 Wall Street crash, the great depression, the Second World War and most
prominently, the disappointment of the Gold Standard System. Many countries
throughout the globe faced financial crunch, and this led to the policy makers to
discourse these international financial concerns. After the Second World War, in the
year 1944, 44 Allied nations come across at Bretton Woods, in the USA. The Bretton
Woods Conference has therefore become a vital milestone in the international
banking system.
The main purposes of the new monetary order were:
To launch an international monetary system with stable exchange rates
To eradicate existing exchange controls
To target to bring convertibility of all currencies
The Bretton Woods Conference, fashioned a new system commonly called as
Bretton Woods System
Bretton Woods System flagged the way for the formation of three significant
multilateral International institutions
viz.,
International Monetary Fund (IMF)
International Bank for Reconstruction and Development (IBRD) prevalently
known as World Bank

 International Trade Organization

Bretton Woods Systems Important Aspects:
(i)
The USA took the obligation to convert the US Dollar into
gold at a fixed equivalence of US$ 35 per ounce of gold (1 troy ounce =
31.10 grams)
(ii)
Other member countries of IMF, agreed to maintain their
currencies at specific parities (ratio) against US Dollar. There was a
alteration of 1% (plus or minus) allowed in the parity
(iii)
In condition of the exchange rate of the member nations
exceeds the 1% threshold limit, then the monetary authorities should take
necessary steps to restore the situation.
In circumstance that the market was buying dollars greatly, the authorities should
make arramgements to sell dollars in order to maintain the parity.
(iv) To manage the parity level, member banks were allowed to borrow from IMF in
the form of Special Drawing Rights (SDRs)
International Monetary Fund (IMF)
It was founded in 1945 and currently has 188 members. Its Aims are:
(a) to endorse international monetary cooperation,
(b) to endeavour for stable exchange rates
(c) to enable the balanced growth of international trade and creation of employment
occasions
(d) to support in establishment of a multilateral payment system
(e) to assist member nations in case of balance of payments crisis

Bank for International Settlement (BIS)

BIS offers a wide range of financial services specifically designed to assist the
central banks and the other official monetary institutions in management of their
foreign exchange reserves. It is headquartered at Basel and has 140 customers
including various international financial institutions who currently make use of these
services. It provides Asset Management services in sovereign securities or high grade
assets. It also extends short term credits to central banks, usually on a collateralized
basis. It does not provide services to private individuals or private entities/corporate.

 Since 1930, the BIS have the legal form of a corporation. Its Board of Directors
consists of 19 members out of which the Governors of central banks of Belgium,
France, Germany, Italy, UK and US Fed chairman are the ex-officio members.
The objective of BIS as per its Article : The objects of the bank are to promote the
cooperation of central banks and to provide additional facilities for international
financial operations, and to act as trustee or an agent in regard to international
financial settlements entrusted to it under agreements with the parties concerned.
A key role played by BIS was to create a Standing Committee of Bank Supervisors
to resolve varied international issues including international payment problems
which arose on account of Herstatt crisis.
Further, BIS has called for banks across the globe to follow the systems and
procedures with respect to capital adequacy norms, loan loss provisioning etc.
Herstatt Crisis: During the nascent phase of the floating exchange rate regime, the
risk of non-payment by the counterpart in a spot foreign exchange transaction was
accentuated by the Herstatt crisis. In this scenario, Deutsche (German) marks, were
offered to Herstatt on 24th June 1974, by a number of banks on ad-hoc basis, the
settlement of dollars was due on 26th June 1974. On the date of clearance the
German marks were debited to the corresponding banks account and the funds were
dropped in Landes-Central Bank the clearing house of Bundesbank, and in turn
credited to Herstatt. Before the settlement in dollars was made to the relevant
counterparty banks, Bankhaus.
Herstatt was formally declared bankrupt on the afternoon of 26th June, 1974. This
happened after the market shut-down in Germany whereas foreign exchange trade
continued in New York. By closing Herstatt before dollar settlements for the day, the
Bundesbank was exposed to a huge risk (inter-bank credit risk) involved in spot
foreign exchange transactions. This case played a key role in International Banking
Scenario which focussed on the significance of the credit risk among banks.
Basel Concordat (1974) Highlighting the need for better administration, guidelines
were drafted and accepted by the Central Bank Governors of the Group of Ten in
December 1975, and was named as Basel Concordat. This is regarded as an
important milestone of international banks supervisory cooperation. The group of
ten countries includes Belgium, Canada, France, Germany, Italy, Japan, the
Netherlands, Sweden, the United Kingdom and the United States. Switzerland was
also incorporated as a part of the group.
Basel Concordat (1974) Vital features:
(a) The supervision of foreign banking establishments is the combined responsibility
of both parent and host authorities.
(b) The supervision of liquidity is the primary responsibility of the host authorities

(c) The supervision of solvency is primarily a concern for the parent authority in the
case of foreign branches and the responsibility of host authority in the case of foreign
subsidiaries.
Revised Basle Concordat (1983)
In 1983, a renewed version of the Basle Concordat was introduced. Successful
cooperation between host and parent authorities is an essential precondition for the
supervision of banks international operations. The supervision of banks foreign
establishments is contemplated from three aspects viz: solvency, liquidity and
foreign exchange operations and position.
Solvency: The allocation of duties for the supervision of solvency of banks foreign
establishment between host and parent authorities will depend upon the type of
company. For branches, their solvency is identical to that of the parent bank. For
subsidiaries, the supervision of solvency is a combined responsibility of both host
and parent authorities. For joint ventures, the adminitration of solvency should
normally for pragmatic reasons, be essentially the responsibility of the authorities in
the country of incorporation.
Liquidity: The host authority is responsible for observing the liquidity of the foreign
banks
Entity in its country; the parent authority has responsibility for monitoring the
liquidity of the banking group as a complete unit. For subsidiaries, primary
responsibility for supervising liquidity should reside with the host authority.
Foreign Exchange Operations and Position: There should be a joint responsibility
of parent and host authorities.
Host authorities should be able to keep an eye on the foreign exchange exposure of
foreign establishments in their respective territories. They also need to be notified of
the status of supervision shouldered by the parent authorities on these
establishments.
Basel Capital Accord (1988): A committee of central banks of G10 countries was
formed to sustain the international banking system and regulate them as well. This is
called as Basel Committee on Banking Supervision(BCBS). The Basle committee
published a set of bare minimum capital requirements for Banks and this is referred
as the 1988 Basel Accord, which was imposed by law in G10 nations in 1992.
The main intention of the Basel Accord was to strengthen the capital base of the
worlds major banks, which were being depleted due to severe competition among
the banks. This is also recognized as Basel I.3
3 http://www.bis.org/fsi/index.htm?m=3%7C17

As per 1988 Accord, banks were recommended to maintain capital equal to a

minimum 8% of a basket of assets measured based on the basis of their risk. Banks
were advised to maintain two tiers of capital viz., Tier I consisting of shareholders
equity and retained earnings, and Tier II covering additional internal and external
resources available to the bank (example Undisclosed reserves; Asset revaluation
reserves, General provisions/general loan loss reserves, Hybrid (debt/equity) capital
instruments and Subordinated debt.
The twin objectives of Basel I was:
(a) to ensure an adequate level of capital in the international banking system and
(b) to create a more level playing field in the competitive environment.
BASEL II
In January 2001, the Basel Committee on Banking Supervision issued a new
proposal for a Basel Capital Accord to replace the 1988 Accord. The New Basel
Capital Accord focused on, three pillars viz.
Pillar I - Minimum capital requirement
Pillar II - Supervisory review
Pillar III - Market discipline
Pillar I - Minimum capital requirement: The Committee on Banking Supervision
suggested the goal standard ratio of capital to Risk Weighted Assets must be at least
8% (of which the core capital element would be at least 4%). The minimum capital
sufficiency ratio of 8% was agreed taking into account the credit risk.
However, in India the Reserve Bank of India has prescribed the minimum capital
adequacy ratio of 9% of Risk Weighted Assets.
Pillar II - Supervisory review: The Supervisory review should be conceded in the
following manner.
Banks should have a procedure for assessing their overall capital sufficiency
Supervisors should evaluate banks assessments
Banks are anticipated to operate above minimum
Supervisors interference if capital is not adequate
Pillar III: Market Discipline
1. Role of the market in assessing the sufficiency of bank capital
2. Efficient catalogue of disclosure requirements

3. Close harmonization with International Accounting Standards Board

4. in principle, revelation of data on semi-annual basis.4

CHAPTER 2: LEGAL AND REGULATORY FRAME WORK

The legal structure that deals with various aspects of forex management in India is
the Foreign Exchange Management Act, 1999 (FEMA 1999) which came into force
on 1st of June, 2000. FEMA, 1999 replaced the Foreign Exchange Regulation Act,
1973 (FERA 1973)
FEMA, 1999 relevant features:
1. FEMA 1999 was endorsed as part of liberalization process

4 http://www.cfr.org/banks-and-banking/basel-committee-bankingsupervision/p28694

2. The main end of FEMA is to amalgamate and amend the law relating to foreign
exchange to facilitate external trade and payments and also to develop foreign
exchange markets in India.
Forex markets play a very critical role in international trade and financial sector.
Prominent features of Forex markets and their consequences on international
banking operations:
Forex markets function on 24x7 basis and therefore deliver superior opportunity to
the international banking system to handgrip the current account as well as capital
account transactions
These markets have become a driving force for vibrant international economies.
In view of numerous PESTEL factors, forex markets are sensitive to the instability,
which outcomes in the movements of exchange rates/ interest rates, and are also
wide-open to various kinds of risks.
The RBI as empowered by section 6 of FEMA issues guidelines for forex
management from time to time. The master circular issued by RBI in July 2015 deals
with two aspects1) Master Circular on Foreign Investment in India
2) Master Circular on Money Transfer Service Scheme5

INTERNATIONAL LAWS APPLICATION IN INTERNATIONAL

BANKING SCENARIO
Choice of Laws: In occasion of cross border transactions, it is imperative to
determine which law should govern the international banking transaction/s.
Therefore, it is vital to choose a particular law which would guard the rights and
obligations of the parties involved.6
Proper Law: The assortment of choice of legal clause is very significant to ensure
that a proper law is selected, to defend the rights and obligations of the parties
concerned. For example, the classic clause which would be incorporated in the
agreements would be like this: This agreement shall be governed, continued and
interpreted in harmony with the law of _______________ (the name of the country).
5 https://rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9895

6 International Banking Legal & Regulatory Aspects, pg 100

This shows that the parties concerned have settled to a particular law, if there is any
dispute in the future, to safeguard their rights and obligations.
Recognition and enforcement of judgments: This is another essential aspect which
deals with enforcement of judgments delivered by foreign courts or awards of
foreign arbitrations.
In view of the past experience London (English) and New York Laws are favoured
since both have a well-developed legal structure, covering the commercial
jurisprudence which is very well assimilated with the international banking system.
Language: An imperative factor which effects the selection of law is the language in
which the International financial market deals and financial terms are used. English
is favoured as an international language; therefore there is a fondness for either
English Law or New York Law.
The selection of the court which would have primary jurisdiction over any dispute is
also influenced
By the following reasons:
(a) Speedy and effective judicial remedies in case of any breach of international
agreements
(b) Recognition and enforcement of the judgments by the courts in other countries.

Chapter 3: Legal Issues in International Banking Transactions

Legal disputes accompanying with international banking transactions ascend due to
participation of more than one law/ s of different nations. Due to numerous reasons,
even in a simple two party loan agreement a number of different legal systems may
be tangled, for example an autonomous currency may be used for the transaction, but
the loan is guaranteed by a third party based in a different country. Under such
situations, more than one law would be used.

In such a status quo, the court would ponder such cases, which comprises of a
foreign element, philosophies of private international law, or conflict of laws, come
into action. The ends of private international law are:
1. to ascertain whether a court has jurisdiction to determine the case
2. to identify which system of law the court will apply to the determine fact of the
case
3. to conclude whether the court will recognize or enforce a judgment obtained in a
foreign court
It is of the paramount importance that the legal aspects of any international banking
transactions are made as predictable as possible. This question of predictability does
not normally pose a significant problem in purely domestic banking transactions,
since the rights and obligations of the various parties will normally be determined by
the local structures of law under which they contract. However, this will not
necessarily be the case in international banking and it will therefore be crucial to
structure the transaction documentation within a competent legal framework. The
most effective way in which this can be achieved is by selecting both
(i)
the system of law which governs the substantive aspects of the
transaction, and
(ii)
the court which will have jurisdiction to resolve any dispute
that may arise.
In the case of odgen v odgen7 and Huber and steiner8, the English courts addressed
the above issues as early as 1835 and held that the forum should characterize rules in
accord to its own domestic law in respect of matter in question and should interpret
the foreign laws to the closet equivalent of the domestic law.9
In view of the above, the international banks sometimes, face problems while
managing the syndicated loans.
In case of international loan agreements, banks and clients would include an express
choice of law clause inside the terms of the contract documents. In event of express

7 OGDEN v. OGDEN [1908] P. 46

8 Huber v Steiner (1835)

9 International Banking Legal & Regulatory Aspects, pg. 104

choice is not mentioned, the contract would be administered by the system of law
with which the transaction has its adjoining and most real connection.
Other Legal Issues
Trade Disputes:
The international trade and finance have some atypical aspects, some of them are
mentioned below:
Buyers and sellers, investors, lenders, borrowers seldom meet each other
On description of positions at different time zones, long distances, culture, political
setup, languages, currency, systems and procedures, legal frame work, interpretations
etc., invariably international commercial and financial markets face lot of differences
and issues in dealing with different types of clients/ banks.
The international trade takes place basically with the support of relevant
documents and legal papers.
Some of the imperative documents used are: Letters of Credit, Guarantees, Bills of
Exchanges, Trade and loan agreements and other supporting commercial
(Commercial Invoice) transportation (Bills of Lading), risk covering (Insurance
Policy) and regulatory documents.
The International Chamber of Commerce (ICC) Paris, issues the UCPDC (Uniform
Customs and Practices for Documentary Credits) and international trade associated
guidelines. In sight of this, the honourable courts usually identify these guidelines
and refrain from giving verdicts in respect of trade disputes and the concerned
parties are advised to be governed by ICC publications pertinent to numerous
transactions.
International Chamber of Commerce (ICC) delivers a conciliation/arbitration stage
for clearing of international trade disputes. Also along with this, Singapore
International Arbitration Centre has also of late, become a commonly acceptable
centre for arbitration of disputes in international trade.10
Derivative Transactions: Derivative is a financial instrument which springs its value
from the value of underlying units such as an asset, index or interest rate. It has no
inherent value in itself. Derivative transactions comprise a range of financial
contracts comprising structured debt obligations and deposits, swaps, futures,
options, caps, floors, collars, Forwards and numerous combinations of these.
Different types of derivative instruments are used as risk management tools to hedge
various risks like credit risk, interest rate risk, foreign exchange risk, etc.,
10 https://www.icsi.edu/docs/webmodules/Publications/9.1%20Banking%20Law
%20-Professional.pdf

Chapter 4: International loan agreement/s

In case of international loan agreements, banks and clients would incorporate an
express choice of law clause within the terms of the contract documents. In case, if
express choice is not mentioned, the contract would be governed by the system of

law with which the transaction has its closest and most real connection. Another
imperative aspect for the banks is to identify and determine
the enforcement in the borrowers own jurisdiction, and/or
in such jurisdictions where the borrowers assets are located
The significant aspects of the international loan agreement/s are:
Clarity: The various terms and conditions are clearly mentioned. The borrowers
status, incorporation, financial projections and other important aspects are clearly
indicated
Clearance/s: The loan agreement should specify the various clearances which are
to be obtained by the borrower from government and regulatory authorities in the
country, before any draw-down is allowed
Condition/s:
(i) The loan agreement should postulate the process for the drawdown of the loan,
the commitment period, method of draw down etc.,
(ii) Repayment schedule should be visibly indicated, and the pre payment option
should also be clearly assimilated in the agreement
Commitment fee/s: The loan agreement should clearly specify the commitment
fees, front-end fees and interest payable (floating or fixed) indication of interest rate
as LIBOR + 75 basis points etc.,
Confirmation: The loan agreement should confirm the methodology of the
application of LIBOR. Generally the agent bank would find out the offered rates of a
group of reference banks on a rollover day and the average is the applicable
LIBOR.
Cross-Default, Jurisdiction and Sovereign Immunity: Certain significant clauses,
if properly scrutinized would assist the lender in case of recovery.
Jurisdiction: The loan agreement should specify the place (jurisdiction) whose laws
are relevant to the interpretation of the rights and commitments under it.
Cross-default: Cross-default clause permits the lenders the right to quicken recovery
of the loan in the event of default by the borrower or the guarantor/s under any other
loan agreement
Sovereign immunity: An express and clear waiver of sovereign immunity is
acquired from the borrower or guarantor as the case may be.11
11 https://www.icsi.edu/docs/webmodules/Publications/9.1%20Banking%20Law
%20-Professional.pdf

Chapter 5: Conclusion and suggestions

The various suggestions to curb risk are:
1) Document standardisationTo overcome the greatest risk which prevails in legal agreements is its
enforceability and to narrow down such risk the international practice in

banking field is to follow certain documents which are standardised in

certain terms. Such as
International Swap and Derivatives Association Master Agreement
International Foreign Exchange Master Agreement
International Currency Options Master Agreement
Master Agreements (Documentation)
ISDA Master Agreement is generally considered as a comprehensive,
omnibus document covering various derivatives Transactions/deals. One
must use these type of documents to avoid risk. 12
2) The Revised Concordat issuesEven the revised version of the concordat contained flaws like the original
concordat had. The major reason for its criticism is the lender of last
resort issue. Morally when the international banks come together for
tackling banking failures they should also come together for imminent
bank failure issues as well. Another reason for the concordat not
implementing the lender issue was that many members were not central
banks of any nation because of which they did not have the power of
lending and sustain such failures. The industrialized nations had stated
very vaguely that they would sustenance the liquidity of the international
markets in times of emergency and so the new concordat did not gave
vital importance to the lender issue. The difficulty of implementing
consolidated supervision appeared evident from the drafters manner of
international bank holding companies. The new Concordat nominated the
host regulator (rather than the parent regulator) as the primary
supervisor of subsidiary banks controlled by a bank holding company, but
failed to designate a primary regulator of the bank holding company
itself. This omission would prove to be a very noteworthy gapone that
the Bank of Commerce and Credit International would later exploit. 13
3) Clearing House Interbank Payment System :
Technology has brought drastic changes in the way the international
banking transactions majorly by settling the account on the same day
works but it has also brought legal issues with it that needs to be
addressed which has occurred in the CHIPS, NEFT, RTGS, etc. Though
12 https://www.icsi.edu/docs/webmodules/Publications/9.1%20Banking%20Law
%20-Professional.pdf

13 http://lawdigitalcommons.bc.edu/cgi/viewcontent.cgi?
article=1061&context=iclr

they brought instant fund transfers and faster check clearance yet the
legal base lacuna is ain regard to this is a major issue which needs to be
addressed immediately.
4) Money laundering:
With the introduction of wire technology and banking transfers taking
place in seconds the issue of money laundering has also increased with
that speed as well and this has become the most pertinent issue for the
banks handling international transactions. This would lead to a lot of risk
especially at the operational level and so the banks need to come up with
a better system of control which would enhance their system to address
the problem of money laundering. Certain suggestions would be to strong
KYC policies are severely trailed at all levels, especially at the ingress
level of a financial transaction.
5) Frauds, insufficient internal control systems:
The above mentioned risk can only be negated or lessoned if an effective
and a clear strategy would govern its internal policies and system of audit
and internal control. , to have better control system the banks functions
should be demarcated evidently into a Front Office, Mid Office and Back
Office. The internal control system should be operative in the sense quite
a limited activities should be subject to online (concurrent) audit, and risk
evaluation should be an integral part of an effective internal control
system.
6) OBUs would be offering wholesale banking services:
Banks started off shores by establishing up multiple types of outlets like ,
foreign branches correspondent banks, foreign subsidiaries, banking units
having off shore branches International banks manage their operations in
different time scales athwart numerous financial markets. International
banks operational efficacy would depend upon(i)

good corporate governance practices

(ii) taking advantage of the technological

revolutions
(iii) keeping pace with the changed atmosphere by
offering innovative cost effective products and services
(iv)
system

operative international risk management

BIBLIOGRAPHY
1) BOOKS International Banking Legal & Regulatory Aspects by Libf
The Financial Obligation in International Law by Rutsel Silvestre J.
Martha
The Law of Letters of Credit and Bank Guarantees by Agasha
Mugasha
International Investment Arbitration: A Practical Handbook by Johan
Billiet

2) WEBSITES http://www.bis.org
https://rbi.org.in

3) PUBLICATIONS https://www.icsi.edu/docs/webmodules/Publications/9.1%20Banking
%20Law%20-Professional.pdf
https://monash.rl.talis.com/items/27863111-32C3-859D-BE5E3ED767B28533.html