Antiquated regulations in the banking industry

Innovation in regulatory and other dimensions of banking policy in most developing countries - and for that matter, in many developed nations - has failed to keep abreast of the innovations in financial services provided by transnational banks. Generally, developing countries regulate on the basis of institutional form, with the emphasis on branch banking, rather than on the basis of the type or function of a financial service. They do not devote nearly the same regulatory attention to finance subsidiaries of transnational banks as to branch offices. In many cases, the outcome is that regulatory control over branches is legally circumvented by the use of these subsidiaries. Thus, pursuing the traditional central bank means of controlling credit creation through control over branch bank deposits alone produces a "blind spot" - in many developed as well as developing nations - that modern transnational banking structures can work around.