This is still a somewhat high number, given the country’s population, and above all, the similarity of products banks are offering. Further mergers and acquisitions may have a positive impact on cost management, which will in turn make it easier for economies of scale to be achieved. On the other hand, domestic mergers and acquisitions are unlikely to involve a cutback in foreign ownership. Enhanced cooperation amongst regulators and supervisors from home and host supervisors is thus essential to the continuing stability of the system. BIS central bankers’ speeches  1  Yet there exists no precise definition what international regulatory cooperation is. Most of the time, it brings to mind the system of committees and working groups meeting in Basel, at the Bank for International Settlements. The international regulations which are the outcome of the Basel system, comprise among other documents, Basel III, the bold new guidelines at the core of which is the concept of risk-weight; some assets are riskier than others and this should be reflected in the percentage of capital that should be held against them. For credit risk, this riskiness is taken to depend on the obligor, i.e. it is taken that savers and investors are almost inherently more averse to obligations of some entities than to obligations of other entities. This approach is not new, but an enhancement of the existing Basel I and Basel II infrastructure.
Most of the criticism directed at Basel III is that higher capital ratios will have an adverse impact on lending because of the high opportunity cost of holding capital. In the economies of emerging Europe, including South East Europe, this criticism is heard less often, given that foreign ownership implies that decisions on capital increases are made at the group or parent level. More generally, the proposition that an increase in capital leads to a reduction in lending is often not validated by the facts. The cost of bank equity, the compensation an investor requires for a bank, falls as the bank’s safety and soundness improve. As equity investors are last in the priority structure in case of a possible bankruptcy, higher capital allocation is likely to increase the confidence in the whole banking sector, which is also an aim of the Basel system. To conclude, the Basel III document is an important milestone in development of international financial regulation. It has both a regulatory and constitutive dimension: on the one hand, it operates as a further development requiring central banks and other regulators to behave in accordance with its principles in order to strengthen financial stability; on the other hand it establishes even firmer the Basel Committee on Bank Supervision as the pivot of international regulatory cooperation centred on the concept of risk-weight. But Basel III also invites the question of a perhaps different representation of entities taking part in its consultative phases.