53. The major issues in International banking: international money laundering, international banking crisis, regulation of international banking, and offshore banking markets.

Offshore banks usually operate on an island or in a country that provides tax benefits, secrecy and lenient regulations (in 30 sites globally). Among the typically offered services are payments and savings accounts, funds transfers, loans, currency exchanges, portfolio management, safekeeping of assets and trust management.

Offshore banking markets attract very high net worth private clients and the large multinationals. As a result, legitimate centres lose business and tax revenues, which in turn raises the tax burden for smaller firms and average net worth individuals. Some centres offering clients a high degree of secrecy (as opposed to confidentiality, where official regulators are given access to client files) are accused of encouraging the growth of money laundering rather than legitimate business and finance. In the wake of 11 September 2001, a few have come under special scrutiny because they are thought to harbour terrorist funds; all are under pressure to freeze the assets of any account thought to be linked to terrorist organizations. Supporters of offshore banking see it as legitimate devices to make loans and raise funds at low cost. They argue that governments shutting down the offshore system try to get rid of tough and fair competition.

The Financial Stability Forum (FSF, for the G-8 finance departments) has called for the IMF to offer international financial policing, and for sanctions to be applied to offshore centres with tax regimes that can undermine the fiscal objectives of the major industrialized countries and/or allow money laundering. Switzerland has been one proactive centre, suspending secrecy laws which had protected clients.

Money laundering is generally regarded as the practice of engaging in financial transactions to conceal the identity, source, and/or destination of illegally gained money by which the proceeds of crime are converted into assets which appear to have a legitimate origin. It is common to refer to money legally obtained as “clean”, and money illegally obtained as “dirty”. Money laundering occurs over a period of three steps, which include the physical distribution of the cash (“placement”), the second step involves carrying out complex financial transactions in order to camouflage the illegal source (“layering”), and the final step which entails acquiring wealth generated from the transactions of the illicit funds (“integration”). In the past, the term money laundering was applied only to financial transactions related to organized crime. Today its definition is often expanded by government and international regulators such as the U.S. Office of the Comptroller of the Currency to mean any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting. Courts involve money laundering committed by private individuals, drug dealers, businesses, corrupt officials, members of criminal organizations, and even states. As financial crime has become more complex, and "Financial Intelligence" (FININT) has become more recognized in combating international crime and terrorism, money laundering has become more prominent in political, economic, and legal debate.

The current financial crisis originated in the U.S. banking system which facilitated cheap and easily available mortgage, triggered by the constant increase of real estate prices. This led to the unprecedented demand for accommodation, especially the houses, which were to be used for short-term investments. The credit requirements were lowering as most of the banks were sure that in case of defaults, they will be able to sell the disposed houses and get a better profit. Besides, huge funds of insurance companies circulated in the banking sphere to insure both the borrowers, and the lenders. But soon the real estate market became overheated and the demand for houses was rapidly decreasing. As a result the real estate prices went down and the cost of accommodation became twice lower than the mortgage borrowed. People failed to fulfill their credit obligations. The number of defaults increased sharply. Banks can not sell the withdrawn estate, are not able to cover their liabilities to other banks, insurers go bankrupt compensating the risks of the population and banks. The liquidity crisis broke out, directly affecting the stock markets and real sector of the economy all over the world. Most industries, highly dependent on the borrowed funds, felt sharp shortage of cheap credits. Together with strong decrease in consumption this lead to the sharp decline of the production and vast bankruptcies of the businesses. The subsequent outburst of unemployment and defaults put the globe economy in great depression.

International banking regulation begins inside each country or nation. U.S. banking is regulated and monitored by the Federal Reserve System, that does not only monitor the banking industry inside the U.S., but by implementing monetary policy, controlling the money supply, and managing the country's foreign exchange and gold reserve, it is also regulates international banking. The Bank for International Settlements (BIS) is the international organization for central banks. Its purpose is to serve as a bank for central banks and to cultivate international financial and monetary cooperation. Because monetary policy is always decided upon by each nation, there can be differences in policy. BIS has two areas of interest: capital adequacy (preventing overvaluing of assets) and making reserve requirements transparent.

One of the better known committees of BIS is the Basel Committee on Banking Supervision which is charged with strengthening banking supervisory systems throughout the world. This committee works to strengthen policy development and accounting and auditing standards.