RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/312 
S/FIN/W/73 3 February 2010 
 
 
(10-0574) 
Council for Trade in Services  Committee on Trade in Financial Services  
 
 
 
FINANCIAL SERVICES 
 
Background Note by the Secretariat
1 
 
 
1. This Note has been prepared at the request of Members, with a view to stimulating 
discussions on financial services.  It provides backgr ound information, and up dates and expands on a 
previous note on trade in financial services (S/C /W/72, dated 2 December 1998).  The Note takes 
account, inter alia , of recent discussions in the Committee on Tr ade in Financial Services.  It focuses 
mainly on developments and issues considered to be  relevant to the GATS.  It is not intended to 
provide a comprehensive account of the sector.   
2. This Note is structured as follows.  Section I provides an overview of GATS provisions of 
particular relevance to financial services, and incl udes a discussion on the issues raised by definitional 
problems in distinguishing between modes 1 and 2 in the context of electronic transactions in financial services.  Section II looks at the economic importance of the sector.  Section III seeks to 
identify long-term trends shaping the financial services sector prior to the financial crisis.  Section IV 
discusses the main causes of the financial crisis, th e policy actions taken by governments to counter 
its effects, and its impact on trade in financial services.  Section V analyzes GATS commitments and MFN exemptions, and highlights main trade barriers.  An Annex looks at classification issues. 
I. THE GATS AND FINANCIAL SERVICES 
3. The multilateral rules and disciplines applicable to  trade in financial services are contained in 
three legal instruments:  the GATS strictly speak ing (i.e. Articles I to XXIX of the Agreement, 
hereinafter "the GATS");  the GATS Annex on Financia l Services (hereinafter "the Annex");  and the 
Understanding on Commitments in Financial Se rvices (hereinafter "the Understanding").
2  The GATS 
contains the rules and disciplines applicable to all service sectors, including financial services.  The 
Annex and the Understanding comple ment and/or modify certain provisions of the GATS, reflecting 
the need for specific rules and disci plines to cater for the particular features of financial services.3  
4. The purpose of this section is not to provide an overview of the GATS, whose general rules 
and disciplines apply to financial services as they ap ply to any other service sector under its coverage, 
but to focus on the provisions of particular relevance to financial services, and on the specific 
                                                      
1 This document has been prepared under the Secret ariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. 
2 It is understood of course that schedules of specific commitments are an integral part of the GATS as 
per Article XXIX.  However, they ar e not discussed in this section. 
3 Thus, to this sector as well, the basic architecture of the Agreement applies, including the definition 
of trade in services by reference to four modes of su pply, the Most-Favoured Nation principle, the distinction 
between scheduled (committed) and non-scheduled (unbound)  sectors, and the possibility for Members to adjust 
their commitments by subsector and mode of supply as th ey see fit.  For an overvi ew of the GATS, see "The 
General Agreement on Trade in Services – An Introduc tion", by the WTO Secretariat, available on the WTO 
website.  S/C/W/312 
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  disciplines on trade in financial services contai ned in the Annex and the Understanding.  
Notwithstanding, it is worth recalling that from th e GATS perspective, services trade liberalization 
means the elimination of six types of limitations to market access, as well as measures contrary to 
national treatment, only with respect to trade in the sectors included in the Members' schedules of 
specific commitments.
4  Moreover, when including a service in their schedules, Members may qualify 
the access granted to their markets (by imposing any of the six limitations referred to before), as well 
as the extent to which national treatment is ensured.5   
5. Measures that do not constitute a limitation on ma rket access as defined by the Agreement, 
nor a limitation to national treatment, fall within th e realm of regulation, whose exercise is guaranteed 
by the GATS.6  Liberalization in the GATS sense is ther efore not synonymous with deregulation of 
service activities.  As a matter of fact, even within  the context of comparable commitments on market 
access and national treatment, Members may operate completely different regulatory frameworks, 
ranging from leaving the services concerned unre gulated to establishing stringent regulatory 
requirements in areas such as licensing,  capital adequacy or liquidity.  
6. Apart from the obligations on market access a nd national treatment, which only apply to 
services included in Members' schedules of specifi c commitments, the GATS contains few general 
obligations that apply to any measure by a Member that affects trade in any service sector under the 
Agreement's coverage, including those that are not included in the Member's schedule of 
commitments.  The most important of these genera l obligations is Most-Favoured Nation (MFN).  
Many other general obligation, such as the ones on payments and transfers for current and capital 
transactions, will only apply with respect to the sect ors where specific commitments have been made. 
A. GATS  PROVISIONS OF PARTICULAR RELEVANCE TO FINANCIAL SERVICES  
1. Status of branches as service suppliers under the GATS 
7. Towards the end of the Uruguay Round, in 1993,  the question was rais ed whether branches 
(and representative offices) were covered by the de finition of service suppliers in Article XXVIII.  
The problem, as perceived at the time, was that while the GATS was drafted in terms of the treatment 
                                                      
4 The six limitations on market access identified in Article XVI of the GATS are the following: 
a) limitations on the number of services suppliers (e.g. monopolies or exclusive rights for the supply of 
reinsurance services, measures limiting the number of bank licenses that will be granted);  b) limitations on the 
total value of service transactions or assets (e.g. measures limiting foreign banking assets to a specific 
percentage of total banking assets in the Member concer ned);  c) limitations on the total number of service 
operations or on the total quantity of service output  (e.g. limitations on the number of ATMs or branches that 
foreign banks can establish);  d) limitations on the total number of natural persons that may be employed in a 
particular service sector or that a service supplier ma y employ (e.g. limitations on the number of foreign 
employees in banking institutions);  e) measures which re strict or require specific types of legal entity or joint 
venture through which a service supplier may supply a service.  This would capture, for examples, not only non-
discriminatory measures requiring specific types of juridical person to supply financial services (e.g. joint-stock companies), but also prohibitions to establish direct br anches; or requirements that foreign insurance companies 
establish joint-ventures with local partners;  host Membe r’s territory;  and f) limitations on the participation of 
foreign capital in terms of maximum percentage limit on foreign-shareholding or the total value of individual or aggregate foreign investment (e.g. measures prohibiting foreign investors from owning more than a specific 
percentage of the shares of asset management companies in the Member making the commitment). 
5 Unlike the provisions on market access, the national treatment obliga tion in the GATS (Article XVII) 
does not contain an exhaustive list of limitations.  Members may therefore schedule any type of discriminatory 
measure that disadvantages foreig n services and service suppliers vis-à-vis  their domestic counterparts. 
6 The fourth considerandum of the GATS Preambl e states: "Recognizing the right of Members to 
regulate, and to introduce new regulations, on the supply of services within their territories in order to meet 
national policy objectives..."  S/C/W/312 
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  to be accorded to "services and service suppliers", the definition of "service supplier" in Article 
XXVIII(g) was confined to persons (i.e. natural or juri dical persons).  This seemed to exclude a priori 
branches and representative offices since they are not juridical persons as per Article XXVIII(d).  The 
implication was that if no clarification was introduced to the text of the GATS, it seemed that 
branches and representative offices of foreign service suppliers would not be entitled to treatment as 
service suppliers.7 
8. However, taking into account that branches and representative offices were recognised in 
XXVIII(d) as forms of "commercial presence" through which the supply of services can take place, a 
footnote to Article XXVIII(g) was introduced in order to clarify the status of branches in the GATS.  
Footnote 12 states the following:  "Where the service is not supplied directly by a juridical person but 
through other forms of commercial presence such  as a branch or a representative office, the service 
supplier (i.e. the juridical person) shall, none theless, through such p resence be accorded the 
treatment provided for service suppliers under the Agreement.  Such treatment shall be extended to 
the presence through which the service is supplied and need not be extended to any other parts of the 
supplier located outside the territo ry where the service is supplied."  
9. Therefore, although a branch is not a juridical  person, the juridical person (parent company) 
represented by the branch is entitled to receive the treatment provided for service suppliers, through 
its commercial presence in the territory where the service is being supplied.  In such a case, the 
service supplier receives GATS treatment only to the extent that it has commercial presence in the 
territory where the service is being supplied;  the ri ght to such treatment does not extend to other parts 
of that juridical person, which exist outside the ju risdiction of the country hosting the branch.  This 
does not mean, however, that the treatment acco rded to a service supplier, which maintains a 
commercial presence in another Member as a branch  should be exactly the same as the one accorded 
to other suppliers that are present in that Member in  the form of juridical persons (i.e. subsidiaries), 
particularly in questions related to taxation, de posit protection, etc.  As explained by the GATT 
Secretariat at the time, "since branches are not cap able of assuming all the legal obligations of a 
juridical person it may be justified to apply special requirements to them, such as the requirement of a 
financial deposit.  The basic obligation is that they should be given the same treatment as that given to 
'like suppliers in similar situations." 8 
2. GATS provisions dealing with paymen ts, transfers and capital movements 
10. The international supply of financial services ofte n entails capital flows.  As a matter of fact, 
although its main focus is on the liberalization of trade in financial services , the GATS could require 
individual Members to allow capital movements  associated with a broad range of – primarily – 
financial services, depending on the level of sp ecific commitments undertaken.  It is no wonder 
therefore, that the GATS contains provisions deali ng with payments, transfers and capital movements.   
11. The extent to which trade in a financial servi ce is linked to the underlying capital movements 
generally depends on the type of financial service a nd the way it is supplied, i.e., across borders or 
through commercial presence.  Since some financ ial service transactions, for example, consulting, 
advisory, and information services, are not accomp anied by capital movements, liberalizing cross-
border trade in such services does not require liftin g capital controls.  Cross-border trade in some 
other services, for example, acceptance of deposits, lending, or trading in securities, is inseparable 
                                                      
7 See Status of Branches as Service Suppliers, Note by the Secretariat, document MTN.GNS/W/176, 
dated 23 October 1993. 
8 See MTN.GNS/W/176. S/C/W/312 
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  from capital movements.  Hence, liberalizing such se rvices transactions requires the liberalization of 
the related capital flows to ma ke the transactions effective.
9     
12. Before examining the specific disciplines con cerned, it is worth recalling that the GATS 
contains in Article XI:2 a general proviso to  preserve the rights and obligations of common 
IMF/WTO Members.  The Article states that no thing in the GATS "shall affect the rights and 
obligations" of Fund members under the Fund’s Ar ticles, including the use of exchange actions 
consistent with those Articles (subject to a partial exception discussed below).10 
13. The GATS deals with payments, transfers and capital movements in Articles XI (Payments 
and Transfers) and XII (Restrictions to Safeguard the Balance of Payments), and in footnote 8 to 
Article XVI (Market Access).  At the outset, it is worth situating these provisions in the appropriate 
context.  The GATS' main purpose, as set out in its  Preamble, is "to establish a multilateral framework 
of principles and rules for trade in services with a vi ew to the expansion of such trade".  Thus, the 
promotion of trade in financial services is a desi gnated purpose.  In contrast, the liberalization of 
payments and transfers for international transactions , or indeed capital movements, is not a primary 
objective of the GATS, but it might be viewed as a related condition.   
14. One aspect to bear in mind when analysing th ese issues is that GATS provisions dealing with 
payments, transfers, and capital movements constit ute "conditional" obligations, applicable only to 
the sectors and modes in which a Member has undertaken specific commitments on market access 
and/or national treatment.  The inscription "unbound" for a particular mode of supply is tantamount to 
the Member concerned retaining full policy discreti on with regard to the supply of that specific 
service through that mode.   
15. GATS obligations on payments and transfers in Article XI are based on a distinction between 
current transactions and capital transactions.11  Under Article XI, a WTO Member having undertaken 
specific commitments on financial services (or in any other services) is under the obligation not to impose "restrictions on international transfers and payments for current transactions relating to its 
specific commitments."  The GATS does not define te rms such as "payments and transfers for current 
transactions", "current transactions", "capital tr ansactions", "movement of capital", or indeed 
"restrictions".   
16. It is worth noting that some of these expr essions have already been defined by the 
International Monetary Fund.  In the Balance-of-P ayments context, the expression “international" is 
                                                     
 
9 See Tamirisa et.  al.  (2000). 
10 The concept of "obligations" under the Fund’s Articles includes the requirement to refrain from 
imposing exchange restrictions on payments and transf ers for current international transactions, multiple 
currency practices, and discriminatory currency arrangements unless approved by the Fund or maintained under 
Article XIV of the Fund's Articles.  The reference to "rights" of Fund me mbers concerns the right to impose or 
maintain all exchange measures (relating to current or ca pital transactions) that are consistent with the Fund’s 
Articles.  Such exchange measures may involve approved restrictions, those maintained under Article XIV of 
the Fund's Articles, and non-restrictive exchange control m easures (which do not require approval), as well as 
restrictions on capital movements.  See Siegel (2002). 
11 Article XI of the GATS reads as follows:   
1.  Except under the circumstances envisaged in Article XII, a Member shall not apply restrictions on 
international transfers and payments for current tr ansactions relating to its specific commitments. 
2.  Nothing in this Agreement shall affect the right s and obligations of the members of the International 
Monetary Fund under the Articles of Agreement of the Fund, including the use of exchange actions which are in 
conformity with the Articles of Agreement, provided th at a Member shall not impose restrictions on any capital 
transactions inconsistently with its specific commitments  regarding such transactions, except under Article XII 
or at the request of the Fund.  S/C/W/312 
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  usually understood to apply to tr ansactions between residents and non-residents.  The IMF Articles of 
Agreement define "payments for current transactions " as "payments which are not for the purpose of 
transferring capital, and includes, without limitation:   (1) all payments due in connection with foreign 
trade, other current business, including services, a nd normal short-term banking  and credit facilities;  
(2) payments due as interest on loans and as net in come from other investments;  (3) payments of 
moderate amount for amortization of loans or for depreciation of direct investments;  and (4) 
moderate remittances for family living expenses."12  While these definitions are not legally part of the 
GATS, they are relevant for the present discussion.  
17. As indicated before, restrictions on transfers and payments for current transactions must not 
be maintained where a Member has made a commitment on financial services.  Neither can they be 
inscribed as limitations in the sch edule of specific commitments.  In other words, a Member cannot 
derogate from a general obligatio n through its schedule of specific commitments.  Permissible 
measures depend on the definition to be given to the term "restriction" contained in GATS Article XI, 
which, however, is not further specified in the Agreem ent.  In that regard, it is worth noting that the 
IMF distinguishes between restrictions on payments and transfers – including exchange restrictions – 
from the underlying transaction on the basis of a technical criterion:  "The guiding principle in ascertaining whether a measure is a restriction on payments and transfers for current transactions 
under Article VIII, Section 2 [of the Fund's Articles of Agreement], is whether it involves a direct 
governmental limitation on the availa bility or use of exchange as such."
13  According to Siegel (2002), 
the Fund therefore identifies these restrictions by this  technical criterion, rather than by the purposes 
or economic effects of the restrictions, which would be the way to identify trade restrictions only.  If 
no such technical criterion were used, it would be al most impossible to distinguish between trade and 
exchange restrictions, as both may be used to ach ieve the same purposes and have the same economic 
effect.  For instance, an outright prohibition to pr ovide a certain financial service would be a trade 
measure subject to scheduling under the GATS, but  would not constitute a restriction on payments 
and transfers for that transaction. 
18. The obligation in paragraph 1 of Article XI to  allow for unrestricted international payments 
and transfers for current transactions is qualified by  the general proviso contained in paragraph 2 of 
the same Article to preserve th e rights and obligations of Fund members under the Fund's Articles of 
Agreement, including the use of exchange actions which are in conformity with the Articles of Agreement.   
19. The second part of Article XI:2 of the GATS d eals with capital transactions.  In this case, 
Members undertake not to impose restrictions on any capital transactions inconsistently with its 
specific commitments regarding those transactions, except under Article XII of the GATS (i.e. in the event of serious balance-of-payments and external financial difficulties or threat thereof) or at the 
request of the International Monetary Fund.  In a ddition, the extent of capital movements required by 
specific commitments is defined in footnote 8 to para graph 1 of Article XVI of the GATS.  First, if 
the Member undertook a commitment on the cross-border supply of a service (mode 1), "and if the cross-border movement of capital is an essential pat of the service itself, that Member is thereby 
                                                     
 
12 Article XXX (d) of the Fund's Articles of Agreement.  It is worth noting that this definition entails 
elements that might otherwise be considered as payments for capital transactions.  This applies in particular to 
(i) payments of moderate amount for amortization of loans or for depreciation of direct investments;  (ii) normal 
short-term banking and credit facilities;   and (iii) moderate remittances for family living expenses.  Article 
XXX(d) of the IMF Articles of Agreement acknowledges that  in certain cases current transactions are difficult 
to distinguish from capital transactions, and therefore pr ovides that "the Fund may, after consultation with the 
members concerned, determine whether cer tain specific transactions are to be considered current transactions or 
capital transactions. 
13 See IMF Decision Nb 1034 (60/27), 1 June 1960.   S/C/W/312 
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  committed to allow such movement of capital."  Secondly, if the Members undertook a commitment 
on the supply of service through commercial presence,  "it is thereby committed to allow related 
transfers of capital into its territory."  Key (2003) considers that "the bottom line is that if a country 
makes a commitment to liberalize trade with respect to  a particular financial service in the GATS, it is 
also making a commitment to liberalize most capital movements associated with the trade 
liberalization commitment", adding that "the c ountry is not, however, making an across-the-board 
commitment to freedom of capital movements."   
20. The term "cross-border movement of capital" u sed in reference to commitments under mode 1 
suggests that the requirement covers both inward  and outward movements of capital;  whereas the 
expression "related transfers of capital into [its] te rritory" used in reference to commitments under 
mode 3 suggests that only capital inflows are envi saged, and not outflows (such as repatriation of 
capital).  Since these minimum obligations on capital movements for modes 1 and 3 are not individually negotiated as part of the schedules, it w ould appear that no reservations can be introduced 
with regard to these obligations under these two mod es.  The absence of reference to the other two 
modes of supply (modes 2 and 4) suggests that Memb ers would not be prevented, with regard to 
related commitments from restricting any associated capital movement.
14  
B. SPECIFIC PROVISIONS GOVERNING TRADE IN FINANCIAL SERVICES  
1. The Annex on Financial Services 
21. Like all other Annexes, this A nnex is an integral part of th e GATS and therefore binding on 
all Members.15  It applies to "measures affecting the supply of financial services", and is divided in 
five sections, dealing with the scope of the GA TS with regard to financial services, domestic 
regulation, recognition, dispute settlement, and definitions.   
22. As further explained in the Annex, the supply of financial services means the supply of those 
services through the four modes identi fied in Article I:2 of the GATS.16  The term "affecting" has 
been interpreted in WTO jurisprudence in a broad manner, as encompassing any measure of a 
Member to the extent that it affects the supply of a service regardless of whether such a measure 
directly governs the supply of that service or whethe r it regulates other matters but nevertheless affect 
trade in services.17 
23. Paragraph 5(a) of the Annex defines "finan cial services" in a broad and non-exhaustive 
manner, as "any service of a financ ial nature offered by a financial service supplier of a Member".  
Financial services include insurance and insuran ce-related services, and all banking and other 
financial services (excluding insurance).18  "Financial service supplier" is also broadly defined by the 
Annex as "any natural or juridical person of a Me mber wishing to supply or supplying financial 
services but the term 'financial service supplier' does not include a public entity".19  Interestingly, 
unlike the concept of service supplier in Article XX VIII(g) of the GATS, this also includes a person 
that "wishes" to supply a financial service.  This wording aims at clarifying that in order to be a 
financial service supplier under the GATS, for the pur pose of the application of any of its provisions, 
the person covered does not need to be already e ngaged in the supply of financial services in the 
                                                      
14 Siegel (2002) makes the same point in footnote 151 of her paper. 
15 Pursuant to Article II:2 of the WTO Agreement,  the agreements and asso ciated legal instruments 
included in its Annex 1, e.g., the GATS, are integral parts of the WTO Agreement, binding on all Members. 
16 Paragraph 1(a) of the Annex. 
17  See Panel Report on EC – Bananas III, para.  7.285, Appellate Body Report on EC – Bananas III, 
para.  220.   
18 See the section of this Note dealing with the classification of financial services. 
19 Paragraph 5(b) of the Annex.  S/C/W/312 
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  territory of the other Member.  This, however, should not be understood to imply that the term 
"service supplier" elsewhere in the GATS carries a different meaning.   
24. In turn, a "public entity", which as indicated is not considered to be a financial service 
supplier under the GATS, is defined as including cent ral banks or monetary authorities, or private 
entities performing their functions.  In the case of non-governmental entities, the relevant exclusion 
applies only to those that are "principally" for governmental purposes and do not  "principally" consist 
of the supply of financial services on commerci al terms.  The expressions "principally", 
"governmental purposes", and "commercial terms" ar e not further defined by either the Agreement 
itself or its Annex.   
25. The Annex delineates the scope of the GATS with regard to the supply of financial services 
by clarifying what "services supplied in th e exercise of governmental authority" means.20  In the case 
of financial services, such services are the follo wing:  i) activities conducted by a central bank or 
monetary authority or by any other public entity in pu rsuit of monetary or exchange rate policies;  ii) 
activities forming part of a statutory system of social security or public retirement plans;  and iii) other 
activities conducted by a public entity for the account or with the guarantee or using the financial 
resources of the Government."  The Annex does not contain any further explan ation or definition of 
these activities.  Apparently, the first category woul d cover monetary policy and exchange rate policy 
activities usually conducted by central banks such  as open market operations, standing facilities 
provided to banking institutions, mi nimum reserve requirements, and exchange market interventions, 
to name just a few.   
26. The Annex further specifies that if a Member allows the last two types of activities "to be 
conducted by its financial service suppliers in comp etition with a public entity or a financial service 
supplier", then those activities are not considered  to be "services supplied in the exercise of 
governmental authority" and will therefore be cons idered as covered by the GATS.  The meaning of 
the expression "in competition" becomes crucial in this context. For instance, financial service 
suppliers are often involved in statutory social security systems through, for example, the 
management of mandatory occupati onal pension funds or the supply of mandatory private insurance 
(e.g.  to provide medical benefits and cash mate rnity benefits).  Many of these activities may be 
subject to the GATS if conducted in competition among different financial service suppliers, for 
example in cases where, depending on the regulatory framework, the beneficiary and/or the employer 
are allowed to choose the pension fund manager or the insurance company that will provide the 
relevant service.   
27. The exact scope of "other activities conducted by  a public entity for the account or with the 
guarantee or using the financial resources of a gove rnment" is not entirely clear, and looks rather 
broad.  The activities covered may even overlap with monetary policy activities in the case, for 
example, of typical public sector guarantees such as lender of last resort facilities, usually managed by 
central banks, and deposit insurance schemes.  Ac tivities of development banks, which are usually 
majority-owned by national governments, and whic h finance investment projects either through 
equity participation, loans or guarantees, might also fall in this category, provided these are not 
conducted in competition.   
                                                      
20 As per GATS Article I:3(b) "services supplied in the exercise of governmental authority" are not 
considered as services for the sake  of the GATS scope and coverage.  GATS Article I:3(c) defines "service 
supplied in the exercise of governmental authority" as  any service which is supplied neither on a commercial 
basis nor in competition with one or more service suppliers.  The expressions "commercial basis" and 
"competition" are not further defined in the Agreement. S/C/W/312 
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  28. The Annex provides for a specific exception for measures taken for prudential reasons.
21  The 
scope of this exception has not yet been interpre ted in WTO jurisprudence, but a few observations 
may nonetheless be warranted.  For one, as in th e case of other exceptions, a measure falling within 
the ambit of the carve-out, although inconsistent w ith other provisions of the GATS, would  still be 
legally permitted.  This is made clear by the e xpression "notwithstanding any other provisions of the 
Agreement" that opens the paragraph.  In othe r words, "measures for prudential reasons" could 
include measures that are inconsistent with a Memb er's MFN obligations, or specific commitments on 
financial services. 
29. Any measure adopted for prude ntial reasons is covered a priori.   The "prudential reasons" 
mentioned are the protection of investors, deposito rs, policyholders or persons to whom a fiduciary 
duty is owed by a financial service supplier, and the preservation of the integrity and stability of the 
financial system.  It is worth noting that this list of "prudential reasons" is only indicative, as 
evidenced by the term "including" that precedes it .  Other "prudential reasons" or more specific 
formulations or elaborations of the reasons me ntioned in the carve-out are therefore possible, 
particularly taking into account that what might be  perceived to constitute "prudential reasons" may 
evolve over time.   
30. Observers have considered that the carve-out  "affords Members considerable autonomy to 
enact financial regulatory measures."22  However, it is not an unqualified exception.  Even though a 
measure may have been taken for prudential reasons , and may be considered a priori covered, the 
measure concerned shall not be used as a means of avoiding commitments or obligations under the 
GATS.  This provision is clearly intended to avoid abuse in the use of the exception.  According to 
Leroux (2002), the second sentence of the carve-out "is essentially an 'anti-avoidance' provision, the 
purpose of which is to prevent the abuse of the exception for prudential measures.  Although 
paragraph 2(a) has yet to be interpreted by a pa nel or the Appellate Body, it is clear that, at a 
minimum, it imposes an obligation of good faith with  respect to the adoption and application of 
prudential measures."  Von Bogdandy and Windsor (2 008a)) also think that the second sentence of the 
carve-out sets, at the very least, "a good faith st andard as to the avoidance of GATS commitments and 
obligations".  In their view however, "[i]n light of the object and purpose of the GATS, particularly Recs 3 and 4 of the GATS Preamble, it seems reasonable to interpret the prudential carve-out as affording the Members a high level of discretion re garding measures for prudential reasons including, 
but not limited to, the ones listed, but at the sa me time not permitting measures that are purely or 
primarily protectionist in effect".   
31. The carve-out differs however from the other general exceptions contained in the GATS – 
Article XIV – in one significant respect.  While Article  XIV allows measures to be inconsistent with a 
Member's obligations provided th ey are "necessary" to protect public morals or to maintain public 
order, or to protect human, animal or plant life or health, the prudential carve-out would allow a 
Member to breach its obligations or specific commitm ents in respect of financial services provided 
the measures are "not used as a means of avoiding"  commitments or obligations under the GATS.  As 
Key (2003) puts it:  "In contrast to health and safety, for example, where only “necessary” measures 
are excepted, all prudential measures are excepted.  As a result, a prudential measure may not be 
                                                     
 
21The "prudential carve-out", as it is usually referred  to, reads as follows:  "Notwithstanding any other 
provisions of the Agreement, a Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed 
by a financial service supplier, or to ensure the integrity and stability of the financial system.  Where such 
measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement." 
22 Jarreau (1999).  S/C/W/312 
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  challenged on the grounds of whether it is 'necessary ' or 'least trade restrictive'.  Moreover, the 
prudential carve-out overrides the requirements for domestic regulations in Article VI of the GATS." 
32. If a measure that allegedly services "prudential reasons" is considered by affected Member(s) 
to violate a Member's obligations or specific commitments under the GATS, it may be challenged 
under the WTO dispute settlement system.  Paragraph 4 of the Annex makes reference to panels "for 
disputes on prudential issues and other financial ma tters."  The same paragraph goes on to require 
such panels to "have the necessary expertise relevant to the  specific financial service under dispute".   
33. With regard to privacy and confidentiality, the Annex complements Articles III bis and 
XIV(c)(ii) of the GATS, by providing another excep tion to protect "information relating to the affairs 
and accounts of individual customers or any confidential or proprietary information in the possession 
of public entities."23 
34. Complementing Article VII of the GATS (Recognition), the Annex also contains provisions 
on recognition of prudential measures.24  Members may thus recognize "prudential measures of any 
other country in determining how the Member's measures relating to financial services shall be 
applied".  Such recognition, which may be achie ved through harmonization or otherwise, may be 
accorded unilaterally or on the basis of a bilate ral agreement or arrangement.  The Annex further 
provides that where a Member grants such recognition to a particular country (or countries), but not to 
others, it must afford adequate opportunity to othe r interested Members to either negotiate their 
accession to existing agreements or arrangements or to negotiate comparable agreements with it, 
provided specific circumstances apply.25  As per Article VII:4 of the GATS, Members must promptly 
notify to the WTO existing recognition measures, wh ether accorded unilaterally or on the basis of 
bilateral agreements or arrangements.  However, contrasting from these obligations, Members are not obliged to notify the WTO of the opening of negotia tions with another country for the purpose of 
concluding an agreement or arrangement  on the recognition of prudential measures.
26 
2. The Understanding on Commitments in Financial Services 
35. The Understanding is a unique legal instrument in the WTO, that was included in the Final 
Act although it is not an integral part of the GATS.  As stated in the introduction to the Understanding, "[p]articipants in the Uruguay Round have been enabled to take on specific 
commitments with respect to financial services ... on the basis of an alterna tive approach to that 
covered by the provisions of Part III of the Agreement."
27  The rules and disciplines contained in the 
                                                      
23 Article III bis of the GATS already contains a generally applicable exception aimed at protecting, 
inter alia , the "legitimate commercial interests of particular  enterprises, public or private", while article 
XIV(c)(ii) contains another generally applicable exception with regard to "the protection of the privacy of  
individuals in relation to the processing and dissemination of personal data and the protection of confidentiality 
of individual records and accounts." 
24 Paragraph 3 of the Annex.  The reference to Article VII of the GATS in paragraph 3(c) of the Annex 
makes it clear that the provisions on the recognition of prudential measures contained in the Annex complement 
rather than replace the provisions  of Article VII of the GATS. 
25 Paragraph 3(b) of the Annex.  The circumstan ces mentioned are the existence of equivalent 
regulation, oversight, implementation of such regulation, and, if appropriate,  procedures concerning the sharing 
of information between the parties to the agreement or arrangement.   
26 Paragraph 3(c) of the Annex. 
27 The adoption of this approach was, however, subj ect to the following conditions as specified in the 
Understanding:  (i) it does not conflict with the provisions  of the Agreement;  (ii) it does not prejudice the right 
of any Member to schedule its specific commitments in  accordance with the approach under Part III of the 
GATS;  (iii) resulting specific commitments shall ap ply on a most-favoured-nation basis;  and (iv) no S/C/W/312 
S/FIN/W/73 Page 10 
 
 
  Understanding are therefore not binding on every Me mber, but only on those that voluntarily adhered 
to it.
28  Members making commitments pursuant to the Understanding have usually inserted a 
headnote to that effect in the section on fina ncial services of their Schedules of Specific  
Commitments.29  Since schedules are an integral part of  the GATS, those obligations have become 
binding on the Members concerned.  Members adop ting the Understanding may, of course, schedule 
conditions and qualifications to the ob ligations imposed by the Understanding.30  There is ample 
evidence of this.   
36. The Understanding is not a plurilateral agre ement with benefits accruing only to those 
Members that have adhered to it.  Rather, accordi ng to an introductory paragraph, "resulting specific 
commitments shall apply on a most-favoured-nation b asis."  The Understanding provides in fact a sort 
of a formula approach to scheduling commitments under Articles XVI, XVII, and XVIII of the GATS with regard to financial services. 
37. The Understanding starts by imposing a sta ndstill obligation, according to which any 
conditions, limitations and qua lifications to the commitments made must be limited to existing non-
conforming measures at the time of making those co mmitments.  In contrast, the GATS is silent on 
this matter, and therefore allows Members to inscrib e limitations and conditions in their schedules that 
represent less than the level of liberalization achie ved with regard to the measure concerned.   
38. Apart from the standstill, the Understanding's ob ligations are organized under two headings:  
Market Access and National Treatment.  The obligations on market access are further broken down into the following categories:  monopoly rights;  financial services purchased by public entities;  
cross-border trade;  commercial presence;  new financial services;  transfers of information and 
processing of information;  temporary entry of pers onnel;  and non-discriminatory measures.  A final 
section on definitions closes the document.   
39. With regard to monopolies, the Understanding a dds to the disciplines imposed by Article VIII 
of the GATS by providing that Members must include in their schedules any existing monopoly rights 
in the financial services sector and shall endeavour  to eliminate them or reduce their scope.  This 
obligation also applies to the activities conducted by a public entity for the account or with the 
guarantee or using the financial resources of the go vernment, which, if provi ded on a non-competitive 
basis, would normally be considered services supplie d in the exercise of governmental authority and, 
thus, fall outside the scope of the GATS.   
40. The Understanding also contains obligations with regard to government procurement:  
Members must ensure that when purchasing financ ial services, public entities in their territories 
accord financial service suppliers of any other Memb er established in their territories MFN treatment 
and national treatment.  This entails a significan t element of GATS-plus treatment, taking into 
account that, according to Article XIII:1 of the GATS, services purchased by governmental agencies 
                                                                                                                                                                    
 
presumption has been created as to th e degree of liberalization to which a Member is committing itself under the 
GATS.   
28 The following Members have made commitments in  accordance with the Understanding:  Australia, 
Bulgaria, Canada, Czech Republic, European Communitie s (EC15), Hungary, Iceland, Japan, Liechtenstein, 
New Zealand, Nigeria, Norway, Slov ak Republic, Sri Lanka (excluding in surance), Switzerland, Turkey, and 
United States. 
29 Those headnotes usually read as follows:  "Co mmitments in this subsector are undertaken in 
accordance with the Understanding on Commitments in Fina ncial Services."  Some Members have added the 
following (or a variation thereof):  "These commitments  are subject to the limitations on market access and 
national treatment in the "all sectors" section of this schedule and to those relating to the subsectors listed 
below." 
30 See the second indent of the introduction to the Understanding.  S/C/W/312 
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  for "governmental purposes" are currently exempt from MFN, market access and national treatment 
obligations.  The Understanding does not clarify th e meaning of the expression "established", but uses 
some form of the word "establish" three tim es in direct connection with commercial presence.31  Von 
Bogdandy and Windsor (2008b)) conclude in that rega rd that "while not exp licit, it seems reasonable 
to assume that 'established' financial service supplie rs means those with a commercial presence in the 
territory of the Member whose government is procur ing financial services".  If that is the case, it 
could be additionally argued that the benefits of this commitment should be extended not only to 
juridical persons established in the territory of th e Member concerned, but also to other forms of 
commercial presence, such as branches and represen tative offices, as per footnote 12 to the GATS.32 
41. The Understanding's obligations concerning cr oss-border trade apply to seemingly both 
modes 1 and 2 of the GATS.  However, the scope of  the mode 1 obligations is narrower than those 
applying to mode 2.33 
42. The obligations imposed by the Understanding on the supply of financial services through 
commercial presence are still broader in scope a nd cover the whole spectrum of financial services.34  
Members are specifically allowed to impose "terms , conditions and procedures for authorization of 
the establishment and expansion of a commercial presence", but onl y in so far as they do not 
circumvent the former obligation and are consis tent with the other obligations of the GATS.35  The 
Understanding also contains specific obliga tions on the temporary entry of personnel.36 
                                                      
31 Paragraphs B.5, B.6, and B.9. 
32 See section B.1. 
33 With regard to mode 1, the Understanding provides that a Member must permit non-resident 
suppliers of financial services to supply, "as a principa l, through an intermediary or as an intermediary, and 
under terms and conditions that accord national treatment", a specific list of services, namely:  a) insurance of 
risks relating to i) mariti me shipping and commercial aviation an d space launching and freight (including 
satellites), with such insurance to cover any or all of the following:  the goods being transported, the vehicle 
transporting the goods and any liability arising there from;  and ii) goods in international transit;  b) reinsurance 
and retrocession;  c) services auxilia ry to insurance, such as consultanc y, actuarial, risk assessment and claim 
settlement services;  d) provision and transfer of financial information and financial data processing as referred 
to in subparagraph 5(a)(x v) of the Annex;  and e) advisory and other auxiliary services, excluding 
intermediation, relating to banking and other financial services as referred to in subparagraph 5(a)(xvi) of the 
Annex.   The commitments on what appears to be mode 2 are broader.  In fact, Members "shall permit its 
residents to purchase in the territory of any other Me mber the financial services indicated" in the previous 
paragraph, as well as all banking and other financial se rvices (excluding insurance) listed in subparagraphs 
subparagraphs 5(a)(v) to (xvi) of the Annex.  The concepts of "principally" and "intermediary" are not defined in the Understanding. 
34 Indeed, under the heading "commercial presence", the Understanding makes it mandatory for 
Members to "grant financial service suppliers of any othe r Member the right to establish or expand within its 
territory, including through the acquisition of existing en terprises, a commercial presence" (para 5).  Article 
XXVIII(d) of the GATS defines "commercial presence" as "any type of business or professional establishment, 
including through (i) the constitution, acquisition or mainte nance of a juridical person, or (ii) the creation or 
maintenance of a branch or a representative office", for the purpose of supplying a services.   
35 Interestingly, the Understanding contains its own definition of "commercial presence", which reads 
as follows:  "Commercial presence mean s an enterprise within a Member's territory for the supply of financial 
services and includes wholly- or partly-owned subsidiaries, joint ventures, partnerships, sole proprietorships, 
franchising operations, branches, agenci es, representative offices or other organizations."  Some observers argue 
that this definition "significantly broadens the general definition" of commercial presence contained in  Article XXVIII.d) of the GATS.  See Von Bogdandy and Windsor (2008b). 
36 For one, Members must permit the temporary entry into their territories of the following personnel of 
a financial service supplier of any other Member that is establishing or has established a commercial presence in 
the territory of the Member:  i) senior managerial pe rsonnel possessing proprietary information essential to the 
establishment, control and operation of the services of th e financial service supplier;  and ii) specialists in the S/C/W/312 
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  43. A Member having adhered to the Understanding must permit "financial service suppliers of 
any other Member established in its territory to offe r in its territory any new financial service."  Like 
the obligation on government procurement, this is  a commitment only to the benefit of established 
foreign financial service suppliers.  It must be  noted that, according to the Understanding, a new 
financial service is not a financial services that does not exist anywhere and is being introduced for 
the first time ever.
37  Rather, such a new financial service ma y be related to exis ting and new products 
or the manner in which a product is delivered.  Th e obligation concerned, as any other obligation in 
the Understanding, is covered by  the GATS prudential carve-out. 
44. Under the heading "transfers of inform ation and processing of information", the 
Understanding provides that a Member shall not take measures that prevent transfers of information, 
the processing of financial information (including  transfers of data by electronic means), or 
equipment, where such transfers of information, processing of financial information or transfers of 
equipment are necessary for the conduct of the ordi nary business of a financial service supplier.  
However, this obligation does not restrict the right  of a Member to protect personal data, personal 
privacy and the confidentiality of individual records and accounts so long as such right is not used to 
circumvent the provisions of the GATS.   
45. The market access obligations in the Unders tanding also address (other) non-discriminatory 
measures.38  The Understanding contains a "best endea vour" obligation "to remove or to limit any 
significant adverse effects on financial service supplie rs of any other Member" of four categories of 
measures.  The first one includes non-discriminatory measures that prevent financial service suppliers 
from offering in the Member's territory, in the fo rm determined by the Member, all the financial 
services permitted by the Member.  A case in point w ould be a prohibition to engage in non-banking 
activities, such as the offering of insurance products  or the investment in securities.  The second 
category refers to non-discriminatory measures that limit the expansion of th e activities of financial 
service suppliers into the entire territory of the Member.  The third category includes measures of a 
Member, when such a Member app lies the same measures to the s upply of both banking and securities 
services, and a financial service supplier of any other Member concentrates its activities on the 
provision of securities services.  The fourth category re fers, in a very broad manner, to "measures that, 
although respecting the provisions of the GATS, a ffect adversely the ability of financial service 
suppliers of any other Member to operate, compete or enter the Member's market."  The Understanding makes it clear that these obligations woul d not require any Member to act in a way that 
would unfairly discriminate against its own financial service suppliers.
39   
                                                                                                                                                                     
operation of the financial service supplier.  Additionally , Members must permit, "subject to the availability of 
qualified personnel" in their territories, the temporary en try into their territories of the following personnel 
"associated with a commercial presence of a financial service supplier" of an y other Member:  i) specialists in 
computer services, telecommunication se rvices and accounts of the financial service supplier;  and ii) actuarial 
and legal specialists.  It should be noted that these obligations are subject to the provisions contained in the 
Annex to the GATS on the Movement of Persons Supplying a Service.   
37 The Understanding defines a new financial services as "a service of a financial nature, including 
services related to existing and new products or the mann er in which a product is delivered, that is not supplied 
by any financial service supplier in the territory of a par ticular Member but which is supplied in the territory of 
another Member."  The "new financial service" must be already supplied in the territory of any Member, not 
necessarily the territory of the Member wishing to introduce it.   
38 Paragraph 10. 
39 Additionally, the Understanding provides that, with  respect to the non-discriminatory measures 
referred to in the first two categories mentioned in the previous paragraph, a Member shall endeavour not to 
limit or restrict the present degree of market opportunities nor the benefits already enjoyed by financial service suppliers of all other Members as a class in the territo ry of the Member, provided th at this commitment does not 
result in unfair discrimination against the Member's financial service suppliers.  S/C/W/312 
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  46. The Understanding also contains two specific ob ligations on national treatment.  First, each 
Members shall grant to financial services suppliers of any other Member established in its territory, 
under national treatment conditions, access to paym ent and clearing systems operated by public 
entities, and to official funding and refinancing f acilities available in the normal course of ordinary 
business.  This obligation is not intended, however, to grant access to the Member's lender of last 
resort facilities.  Second, when membership in, or access to, any self-regulatory body, securities or 
futures exchange or market, clearing agency, or any other organization or association, is required by a 
Member in order for foreign financial service supp liers to supply financial services on an equal basis 
with national financial service suppliers, or when the Member provides such entities, directly or 
indirectly, with privileges or advantages in supplyi ng financial services, the Member shall ensure that 
such entities accord national treatment to foreign financ ial service suppliers "resident" in the territory 
of the Member.  In this context, the Understa nding makes reference to "resident" financial service 
suppliers, and not to "established" financial services suppliers, but no definition is provided of either 
term.   
C. THE DISTINCTION BETWEEN MODES 1 AND 2 OF THE GATS 
1. The problem 
47. Financial services are more easily supplied across fro ntiers than many other products.  In fact, 
financial services consist in essence of diverse mechan isms or instruments that financial institutions 
put at the disposal of their clients to, inter alia,  store savings, allocate resources, make payments, and 
manage risk.  Such mechanisms or instruments ma terialize essentially in contracts (e.g.  insurance 
policies, derivative contracts), structured informa tion (e.g.  bank accounts, credit card payments) or 
information exchange between the client and the fina ncial supplier (e.g.  financial advice).  By their 
very nature, such contracts and information can ci rculate easily across borders and can be transmitted 
to consumers directly, sometimes via intermediari es, more often by traditional mail and increasingly 
via electronic channels (e.g.  Internet, mobile phones). 
48. Although cases of cross-border banking without a physical presence in the local jurisdiction 
were not previously unknown, the emergence of the Internet as ubiquitous and truly global electronic distribution channel has dramatically expanded the possibilities for the supply of different financial 
products and services on a cross-border basis.  From  a GATS perspective, the possibility of supplying 
financial services cross-border without the establishm ent of a commercial presence by the supplier in 
the host country raises the issue of whether the tran saction has taken place under mode 1 or mode 2.   
49. This issue was originally raised by some Me mbers in mid-1996, and was further discussed the 
following year in the context of the negotiations on financial services which led to the Fifth Protocol.  
Informal consultations were held at the time, and the outcome of those discussions are contained in 
two informal documents issued by the Secretaria t, which were later attached to the Scheduling 
Guidelines.
40 
50. They seek to address a perceived ambiguity whic h is due to the fact that the delivery of a 
financial service very often does not require the ph ysical presence of the consumer.  Technological 
advances have made it possible to "deliver" a financia l service almost anywhere in the world.  Once 
the physical presence of the consumer ceases to be a benchmark for determin ing the place of delivery 
                                                      
40 See Attachments 2 and 3 to the Guidelines for the Scheduling of Specifi c Commitments under the 
General Agreement on Trade in Services (GATS), adopte d by the Council for Trade in Services on 23 March 
2001 (document S/L/92, dated 28 March 2001). S/C/W/312 
S/FIN/W/73 Page 14 
 
 
  of a service, it becomes extremely difficult to de termine in an unambiguous manner where a service is 
delivered.
41   
51. In essence, what is at  stake here is whether a cross-bor der financial transaction should be 
classified as a mode 1 or a mode 2 transaction.  It is clear that this question becomes particularly 
relevant when different levels of commitment ha ve been undertaken for each of the two modes of 
supply, which is often the case, with more liberal co mmitments undertaken in general for mode 2.  On 
the other hand, if both modes of supply were unbou nd, the Member concerned would be entitled to 
introduce any restrictions on market access or na tional treatment either hampering the non-established 
suppliers to supply services into its own territory  or preventing its own consumers from acquiring 
services abroad.  Similarly, if both modes of suppl y were fully bound, it would be legally impossible 
for the Member concerned to restrict a forei gn non-established supplier from reaching a consumer 
within its territory or prevent its own consumers from getting services abroad. 
2. The solutions envisaged in the past 
52. At the time of the negotiations on financial ser vices, in 1997, Members discussed several 
options to deal with this issue:  
(a) all financial transactions (between non-resi dent suppliers and re sident consumers) 
that take place inside a Member's territory could be classified as mode 1; 
(b) mode 1 transactions could be defined as those that take place under the laws of the 
Member, while mode 2 transactions could be defined as those that take place under the laws of the foreign country fro m which the service is supplied; 
(c) the supply of services accompanied by solic itation could be defined as mode 1;  if 
not, mode 2;   
(d) any measure applicable to the supplier of the service could be classified under mode 
1, any measure applicable to the consumer under mode 2;  or 
(e) modes 1 and 2 could be merged. 
53. All options have their particular pros and c ons.  In (a) above, the question of determining 
where the delivery of the service takes place is subs tituted by the determination of where the financial 
transaction takes place, which in the online e nvironment may be as difficult to determine as 
establishing the place of delivery.  The problem with option (b) is that the territorial application of 
laws differ between countries;  in case of a conf lict, the question would remain unresolved for GATS 
purposes.  The fact that the parties to a financial tr ansaction could choose the laws applicable to them 
might also complicate the issue.  Moreover, as a matte r of principle, there is no relationship between 
the territory in which a transaction takes place fo r GATS purposes and the place of legal jurisdiction 
in private international law.  These are in fact  two different issues which many observers have 
emphasized without explaining clearly what the link might be.   
                                                     
 
41 As indicated in the Scheduling Guidelines, the modes of supply "are essentially defined on the basis 
of the origin of the service supplier and consumer, and the degree and type of territorial presence which they 
have at the moment the service is delivered".41   The distinction between these two modes of supply would 
therefore hinge on whether the service is delivered within the territory of the consumer (from, say, another 
Member) or whether the service is delivered to a consumer outside his/her own country.  S/C/W/312 
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 Page 15 
 
 
  54. Option (c) also requires a departure from the approach of determining the mode of supply by 
the place of delivery of the service.  Besides, in the online environment, determining whether there 
was solicitation may raise enforcement problems.  Mo reover, the distinction made – as relevant as it 
may be to ascertain who regulates and supervises the service supplier – seems to be based on the 
premise that the consumer is free to perform th e transaction with a non-established supplier anyway, 
provided there is no solicitation.  However, this distinction serves no purpose if the transaction is 
banned per se ;  in other words, if the consumer is not a llowed to consume the service abroad or to get 
it from a non-established supplier, regardless of the existence or not of solicitation.   
55. Option (d) seems to be quite straightforward.  However, there could be cases in which the 
regulatory measures are applicable to both supp liers and consumers.  Option (e) does not seem 
feasible without an amendment to the GATS, and would contradict at the present stage the Negotiating Guidelines and Procedures agreed by Members for this round of negotiations.
42  Finally, 
from a negotiating perspective, another solution envisag ed is the undertaking of (full) commitments in 
both modes of supply, which as explained before, wo uld render the problem irrelevant for the sake of 
the GATS and the WTO dispute settlement system. 
56. During the informal consultations held in 1997 , given time constraints then, it was felt that 
developing a common multilateral solution for the pur poses of the financial services negotiations was 
infeasible and unnecessary.  It was agreed that the responsibility for clarifying the content of 
commitments under modes 1 and 2 must lie with those individual Members feeling the need to do so.  
The simplest means of providing such clarification was the use of a headnote to the financial services 
commitments.  Again, it was not thought necessary or feasible to develop a common headnote, but 
delegations undertook to give thought  to the two examples circulated by the Secretariat, and to any 
other examples which may come forward.43  There was also wide support at the time for the view that 
in the long-term efforts should be made towards providing a definitive distinction between modes 1 
and 2 in financial services.  However, some delega tions remained unconvinced of the need for further 
consideration in the near future. 
57. The issue resurfaced in 1999, in the contex t of the WTO Work Programme on Electronic 
Commerce.  A progress report prepared by the Counc il for Trade in Services explains that "it was 
recognized that services could be supplied electronically under any of the four modes of supply.  However, there was particular difficulty in making a distinction between supply under  modes 1 and 2 
in the case of electronic commerce, but no conclusion  was reached as to how to clarify the matter, and 
it was agreed that further work is necessary".
44  The Committee on Trade in Financial Services 
addressed the issue the following year.  The Committee's Annual Report states:  "Regarding the distinction between modes 1 and 2, while recognizing  its importance for the clarity of commitments, 
the Committee decided that the issue should be tack led at a later stage when concrete problems are 
identified".
45   
                                                      
42 Paragraph 4 of the Guidelines and Procedures fo r the Negotiations on Trade in Services, adopted by 
the Special Session of the Council for Trade in Services on 28 March 2001 (document S/L/93, dated 29 March 
2001), reads as follows:  "The nego tiations shall take place within and sh all respect the existing structure and 
principles of the GATS, including the right to specify sectors in which commitments will be undertaken and the 
four modes of supply". 
43 See Attachment 3 to document S/L/92.  The head notes proposed by the Secretariat at the time 
reflected solutions (c) and (d).   
44 See Work Programme on Electronic Commerce - Progr ess Report to the General Council, Adopted 
by the Council for Trade in Services on 19 July 1999 (document S/L/74, dated 27 July 1999). 
45 Report of the Committee on Trade in Financial Services to the Council for Trade in Services 
(document S/FIN/5, dated 24 November 2000). S/C/W/312 
S/FIN/W/73 Page 16 
 
 
  58. In 2005, the issue was discussed  again at the initiative of the delegation of Brazil, but no 
progress was made.
46  The outcome of these discussions was the following:  Firstly, most Members 
did not consider it necessary to have an updated Note by the Secretariat at this stage.  Some preferred 
reviewing previous discussions on this issue to see whether there might be a need for further 
information.  Secondly, there was no consensus at  that stage to invite representatives from the 
International Standard Setting Organizations. 
II. ECONOMIC IMPORTANCE OF THE SECTOR 
A. CONTRIBUTION TO OVERALL ECONOMIC ACTIVITY  
59. Tables 1 and 2 illustrate the importance of the financial services sector (including insurance 
services), both as producer and as employer.  Value added in financial services as a share of GDP 
ranges from about 1 per cent or less (Cambodia, Nigeria, Madagascar, Libya and Mali), to more than 10 per cent in economies as diverse as St. Kitts an d Nevis, Kiribati, Hong Kong, China, Bahamas, 
Tonga, Switzerland, Dominica, Singapore and Ireland, or even more than 20 per cent in Bahrain and 
Luxembourg.  The 2000s have seen a significant shif t toward the production of financial services in 
places such as Kiribati, Iceland, Ireland, Jordan and the United Kingdom. 
60. Employment in the financial services sector  ranges from less than 1 per cent of total 
employment in Bolivia, Azerbaijan, Kyrgyz Republic , Indonesia, Mexico, Georgia, Nicaragua, Egypt, 
Kazakhstan, Bhutan, and Thailand, to more than  4 per cent in Cyprus, United States, Ireland, 
Switzerland, Canada, Gibraltar and Uruguay, and to more than 10 per cent in places such as Cayman 
Islands, Bahamas, South Africa, Luxembourg,  and Jersey (more than 20 per cent).   
61. The size of the financial services sector – both domestically and internationally – is also 
reflected in other indicators.  For example, according to the McKinsey Global Institute, global financial assets reached an all time high of US $194 trillion in 2007, equiva lent to 343 per cent of 
world GDP (Table 3).  The United States, the Euro-area countries, Japan, and the United Kingdom 
together accounted for almost three quarters of  those assets.   
62. Other indicators, drawn mostly from a recently u pdated – and publicly available – database at 
the World Bank, shed further light on financial depth worldwide.
47  Liquid liabilities is the broadest 
available indicator of financial intermediation,  since it includes all banks, bank-like and non-bank 
financial institutions.48  The ratio of liquid liabilities to GDP shows a large variation, ranging from 
more than 100 per cent for some twenty countries to as little as 20 per cent for the smallest fifteen.  
The list of countries with the highest shares of li quid liabilities to GDP include economies as diverse 
as Luxembourg (394 per cent), Hong Kong, China (277 per cent), Japan (198 per cent), Switzerland 
(144 per cent), St. Kitts and Nevis (142 per cen t), United Kingdom (140 per cent), Spain (129 per 
                                                      
46 "Electronic Commerce and Financial Serv ices", Communication from Brazil (Document 
Job(05)/103, dated 13 June 2005).  See reports of the m eetings of the Committee on Tr ade in Financial Services 
held on 23 June and 19 September 2005 (documents S/FIN/M/49 and 50).  In essence, Members did not reach 
consensus to embark on further analysis of these issues or to invite International Standard Setting Organizations 
(principally the Basel Committee on Banking Supervisi on and the International Organization of Securities 
Commissions) to share information with Members on their activities related to the regulation and supervision of 
cross-border financial service suppliers.   
47 See Beck et al.  (2009). 
48 Liquid liabilities or broad money (M3) consists of the sum of currency and deposits in the Central 
Bank (M0), plus transferable deposits and electronic currency (M1), plus time and savings deposits, foreign 
currency transferable deposits , certificates of deposit, and securities repu rchase agreements (M2), plus travellers 
checks, foreign currency time deposits , commercial paper, and shares of mutual funds or market funds held by 
residents.    S/C/W/312 
 S/FIN/W/73 
 Page 17 
 
 
  cent), Jordan (126 per cent), Canada (123 per cent) , the Netherlands (122 per cent), Macao, China 
(117 per cent), Malaysia (116 per cent), Singapore (114 per cent), Germany (109 per cent), Vanuatu 
(107 per cent), Grenada (107 per cent), Portugal (105 per cent), and Belgium (104 per cent).  Another 
common indicator of financial depth is the ratio of  Bank Deposits to GDP.  He re again, while deposits 
represented more than 100 per cent of GDP in 2007 for 18 countries, they only represented 25 per 
cent for 25 countries.   
63. While liquid liabilities and bank deposits reflect th e liability side of financial intermediaries, 
other indicators, such as the ratio of private cred it by financial institutions to GDP focus on the asset 
side of financial institutions and aims at capturing one of the most important functions of financial 
intermediaries – credit allocation.  In 20 economie s, consisting mostly of high income countries, 
private credit represented more than the value of GDP in 2007.  Not surprisingly , the list is headed by 
the United States. 
64. The indicators on stock market capitalization to GDP and private bond market capitalization 
to GDP give an indication of the size of the capital market relative to the size of the economy.  Stock 
market capitalization can represent more than 200 per cent of GDP for economies such as Hong 
Kong, China;  Switzerland;  South Africa;  Luxembourg;  Jordan;  a nd Iceland.  Only three economies 
had a ratio of bond market capitalization relative to  GDP higher than 100 per cent in 2007:  Iceland 
(356 per cent), Denmark (149 per cent), and the United States (125 per cent).   
65. Chart 1 shows all these indicators for differe nt income country groups, as defined by the 
World Bank.49   
66. Chart 2 and Table 4 show insurance penetrati on and insurance density for the life and non-life 
lines of business.  While individuals and comp anies in high-income OECD countries spend on 
average more than US$3,000 on insurance per year, individuals and companies in upper middle income countries spend on average no more than US$280 .  Insurance penetration is generally higher 
for non-life insurance at all levels of development.   Both indicators are associated with the level of 
development, particularly in life insurance, wh ich is much more income-elastic than non-life 
insurance products.   
67. In spite of the great disparity in financial dept h, it is clear that financial systems across the 
world, both in developed and developing economies, ha ve deepened over the last decades.  Charts 3 to 
7 show different indicators of financial depth ove r time for different country groups.  For example, 
while the size of financial systems, as measured by total financial assets to GDP, was roughly 60 per 
cent of GDP in high-income countries in 1980, it  represented more than 120 per cent in 2007.  In 
upper middle income countries, the size of the financ ial system almost doubled in less than 40 years, 
moving from slightly more than 30 per cent of GDP in 1970 to more than 60 per cent in 2007.  The same progression can be seen in liquid liabilities to GDP.  Private credit also expanded vigorously 
over the years, going from less than 20 and 40 per cent of GDP in 1960 in upper-middle income and 
high income countries respectively to more than  40 and 100 per cent for both groups of countries, 
respectively, in 2007.   
68. Much of the deepening continues to be concentrated in high income countries.
50  From  the  
perspective of low- and middle-income countries this may be reason for concern, as growing 
empirical evidence tends to suggest that financ ial sector development has a positive impact on long-
                                                      
49 Economies are divided according to 2008 Gross National Income per capita, calculated using the 
World Bank Atlas method.  The groups are:  low inco me, US$975 or less;  lower middle income, US$976 - 
$3,855;  upper middle income, US$3,856 - $11,905;  and high income, US$11,906 or more. 
50 See Beck and Demirgüç-Kunt, 2009. S/C/W/312 
S/FIN/W/73 Page 18 
 
 
  run economic growth.
51  For some, however, the financial crisis  has called this into  question.  After 
all, there is reason to believe that much of th e rise in financial assets in high income countries in 
recent years did not reflect capital being channe lled into economically productive activities; but 
reflected policy distortions and growing asset bubbles.  It turned out that in many places the financial 
system was not performing its basic functions – in cluding risk management, resource allocation, and 
corporate governance – in an efficient manner. 
69. Yet, after all, financial deepening was a ke y factor fostering the significant productivity 
growth of the 1990s and gave ma ny borrowers, particularly productive firms, unparalleled access to 
credit.  Reforms might therefore need to focus on improving the functioning of the system, with a 
view to reaping the benefits of better resour ce allocation and economic growth, while preventing 
dangerous excesses.  All economies stand to gain from  financial deepening.  While capital markets are 
instrumental in financing the activities of large corp orations, the banking system plays a critical role 
in funding not only large, but also small and medium-s ized firms.  Similarly, lack of access to finance, 
not only of businesses but also of households, severely restrains economic welfare and growth.  In 
that sense, the task of fostering sound financial sy stem development has become more important than 
ever. 
B. OVERVIEW OF TRADE IN FINANCIAL SERVICES  
70. In recent years, financial services trade has experienced rapid growth in tandem with the 
deepening of financial systems.  Several factors ha ve contributed to this expansion:  technological 
progress, regulatory reform (including the liberaliza tion of trade in financial services), the expansion 
of world trade in general, as well as macroec onomic stability and high growth rates during the 1997-
2007 decade. 
71. At present, Balance of Payments statistics, which measure resident to non-resident 
transactions, are the main source of data on interna tional trade in financial and insurance services.52  
                                                      
51 See Demirgüç-Kunt and Levine (2008), for a recent and thorough overview of studies on 1) the 
relationship between financial development and economic growth, and 2) the policy and institutional 
determinants of financial development.  As explained also by these authors, there are certainly methodological problems associated with this kind of studies, such as reverse causality, difficulties in measuring financial 
development, and nonlinearities and thres hold effects.  The latest evidence suggests that reverse causality is not 
governing the relationship, and that causality goes from financial development to economic growth.  
Nonlinearities are relevant, and may be an issue in future research, if the date covers more thoroughly the 2000s, 
which has not been the case so far.  For example, financial size and depth may be actually reflecting policy distortions rather than financial development.  Hence it should not come as a surprise that the econometric link 
between banking depth and aggregate economic growth has weakened in recent years, in particular when the 
data set includes the 1997 East Asian crisis or is limite d to turbulent Latin American countries.  Also, threshold 
effects are important.  For example,  below a certain level of development, small differences in financial 
development do not seem to help growth.  Distinguishing between long-run and short-run effects of financial 
development, where it has been found that the former may be positive but the latter negative, is also important.  Another challenge to the finance and growth literature comes in the form of individual country outliers, i.e. 
those countries that may be cited as counterexamples b ecause they have registered high economic growth rates 
despite weaknesses in the financial system.  Recent re search has also found a po sitive relationship between 
insurance activity and economic growth.  See Arena (2006).  
52 Trade in financial services consists of two categories:  insurance services  and financial services .  
"Insurance services" cover the provision of various types of insurance to non-residents by resident insurance enterprises, and vice versa.  Insuran ce services are further subdivided into  five components – life insurance and 
pension funding, freight insurance, other direct insuranc e, reinsurance, and auxiliary  services to insurance.  
"Financial services" covers financia l intermediation and auxiliary services , provided by banks, stock exchanges, 
factoring enterprises, credit card enterprises, and ot her enterprises.  Apart from a few exceptions, f inancial 
services  in BOP statistics do not include the so-called financial intermediation services indirectly measured   S/C/W/312 
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  According to WTO data, world exports of financial services (including insurance) have grown by 17 
per cent per year since 2000, reaching US$370 billi on in 2007.  Financial services were among the 
main components of the growth of world exports of commercial services.  In 2007, they accounted 
overall for 11 per cent of global exports of commerc ial services up from 6 per cent in 1995.  However, 
while the share of insurance servi ces in world exports of commercia l services has rema ined somewhat 
stable at 2 per cent, financial services exports ha ve increased their part from 4 per cent in 1995 to 9 
per cent in 2007 (Chart 8). 
72. Tables 5 and 6 provide information on cross-borde r trade in financial services and insurance 
services for 15 leading economies.  Together they represent 97 per cent of world financial services 
exports, and 93 per cent of world expor ts of insurance services.  As shown by the tables, the European 
Union (27) and the United States are the biggest exporters and importers of both financial and 
insurance services.  Switzerland app ears as the third largest exporter of both services.  Tables 7 and 8 
show available data on bilateral cross-border trade in financial and insurance services for a selection 
of Members that compile such information.  As can be seen in those tables, there are significant levels 
of trade within the European Union, and between the European Union and the United States.  While 
56 per cent and almost 50 per cent of European Uni on's exports of financial and insurance services are 
in fact intra-EU trade, 14 per cent of European Uni on's exports of financial services are destined to the 
United States, and almost 29 per cent of European Un ion's insurance exports have also the US as final 
destination.  In the case of the United States, 42 per cent of its financial services exports are destined 
to the European Union, while 30 per cent of its exports of insurance services have the European 
Union as a destination.   
73. The cross-border data presented so far, gleaned  from Balance-of-Payments statistics, reflect 
trade under mode 1 (and to a lesser extent modes 2 and 4) of the GATS.  In spite of improvements 
made over the last years in the collection of statis tics on trade in services, very limited data still exist 
on trade under mode 3 of the GATS, in particular fo r financial and insurance services.  Available data 
on total outward sales of enterprises primarily engage d in financial activities (including insurance), as 
published by the Organization for Economic Coopera tion and Development (OECD), are presented in 
Table 9.53  The United States appears as the biggest e xporter of financial servi ces under this mode of 
supply, followed by Germany.54 
                                                                                                                                                                     
(FISIM), which reflect financial service charges that, while not explicit, may be imputed or derived from the 
differences between appropriat e reference interest rates and rates actually applied to loans, debt securities, or 
deposits.  Such imputations are equivalent to reclassifying a portion of interest as financial services. 
53 Although imperfect, these are cu rrently the best approximation for financial and insurance services 
sales through commercial presence.  Ou tward turnover comprises the totals invoiced by the observation unit 
primarily engaged in financial (including insurance) serv ices activities during the reference period (i.e. including 
sales or output of non-financial services and/or go ods which may correspond to secondary activities of the 
affiliates).  In addition, given the recent development of  the foreign affiliates statistical framework there may be 
a number of methodological and coverage  differences which limit the compar ability of the data.  Data for the 
US (which did not cover affiliates of banks at the time of writing) have been included in Table 9 for the sake of 
comparability.  However, the US also compiles data on "services supplied" through affiliates, a better 
approximation of the supply of services through mode 3 (since 2009 the US Bureau of Economic Analysis release also includes data of services pr ovided by bank affiliates, see Box 1). 
54 It is worth noting that the proxy for financial services used in these data, taken from the OECD data 
on foreign affiliates activities, is outward turnover, which does not fully accurately reflect trade under mode 3 of 
the GATS.  Outward turnover comprises the totals invoice d by the observation unit during the reference period, 
and corresponds to sales of goods and services supplied to third parties.  As noted above, data on the US have 
been included for the sake of comparability.  However, the US also compiles data on "services supplied" through affiliates, which is a better approximation of serv ices trade under mode 3.  Last year, the US included 
data of services provided by bank affiliates (see Box 1). S/C/W/312 
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III. LONG-TERM TRENDS SHAPING THE FINANCIAL SERVICES SECTOR 
74. The environment in which the financial services in dustry operates and the industry itself have 
undergone dramatic changes in the last decades.   Several forces, including globalization and 
internationalization
55, liberalization and policy reform, conso lidation, convergence, and technological 
change, are affecting financial services firms, ma rkets and products.  These trends are inter-related 
and often mutually reinforcing.  They have increa sed the complexity of the financial services sector, 
with the subsequent alteration of the types and extent  of risks faced by consumers, investors, and the 
industry.  Increased complexity has, in turn, po sed new challenges for regulators and policy-makers.56   
75. Of all types of financial institutions, banks have been the most active in pursuing an 
international presence.  Data on the share of foreign banks in domestic markets are very telling in that 
regard.  As can be seen in Tables 10 and 11, bank fo reign ownership increased in almost all regions of 
the world, including in developed countries.  The increase in foreign ownership between 1995 and 
2005 was particularly noticeable in Eastern Eur ope, where the share of banking assets under foreign 
                                                      
55 One could roughly define internationalization as the elimination of barriers to entry and 
discrimination in domestic financial sectors.  In that  sense, financial sectors become more open to foreign 
competition.  Globalization could be  roughly depicted as an increase in linkages among financial markets 
around the globe.  Therefore, markets have become not only more open, but also more interconnected over the 
years.  The growth, for exampl e, of international debt securities over th e last 15 years is a clear illustration of the 
growing linkages among financial markets around the globe. 
56 See Marchetti (2009 a) for further discussions of these trends.  Box 1.  Improvements in US data on  foreign affiliates trade in services . 
 
In 2009, a new measure of services provided by affilia tes, called "services supplied", was introduced by the 
US Bureau of Economic Analysis (BEA).  The "servi ces supplied" measure incorporated new measures of 
insurance that are more akin to serv ices output than the previous "sales of services" measure.  The measure 
has also been expanded to cover services provided by ba nk affiliates.  In particul ar, the statistics on services 
supplied for 2004 now cover services supplied abroad by majority-owned bank foreign affiliates and non-
bank foreign affiliates owned by US banks, as well as  services supplied to the United States by foreign 
companies' US bank affiliates.  This closes an  important gap in the coverage of US data.   
 
Effects of the new measures on insu rance and banking services developed by the United States (US$ billion) 
 
 2004 2005 2006 2007 
Services supplied to foreign residents through MOFAs        Effects of new measures:     
        Insurance services -53.2 -57.4 -48.6 -47.6 
        Banks' services +42.1 +70.6 +93.0 +109.2      
Services supplied to US residents through MOUSAs     
   Effects of new measures:             Insurance services -44.6 -43.1 -49.7 -55.3 
        Banks' services +39.4 +44.0 +44.7 +47.7 
     Notes:  MOFAs denotes majority-owned foreign aff iliates, while MOUSAs stand for majority-owned US 
affiliates.  The expression "measure" is used in this Bo x in its statistical sense, and not as used in the GATS. 
Source :  Koncz-Bruner Jennifer and Anne Flatness "U.S. International Services – Cross Border Trade in 
2008 and Services Supplied Through Affiliates in 2007 ", Survey of Current Business 89, October 2009. 
  S/C/W/312 
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  control grew from 25 per cent to 58 per cent, and in Latin America, where that share rose from 18 to 
38 per cent of total bank assets.  In contrast, in ternationalization of banking has proceeded more 
slowly in Africa, Asia, and the Middle East. 
76. The literature has identified the following main determinants of bank internationalization:  a) 
the "follow-the-client" hypothesis, according to wh ich banks’ cross-border expa nsion is a by-product 
of internationalization in manufacturing, and that see ms particularly suited to explain the expansion of 
banks towards developed markets;  b) migration,  which has made it necessary for developing-country 
banks to organize their operations so as to better serv e a growing numbers of expatriates;  c) profit 
opportunities in the host market, which seems to be a good explanatory variable  for the expansion of 
banks into developing countries' markets;  d) in tegration between home and host countries, measured 
by geographical distance, by the volume of bilateral trade flows or bilateral FDI or by linguistic and 
institutional proximity;  and e) the degree of competition, as well as the elimination of regulatory restrictions on banking.
57   
77. It is interesting to note that the most recent da ta show that the mode of foreign bank entry in 
developing countries has shifted from greenfield inv estments to mergers and acquisitions (M&A), and 
from branches to subsidiaries.  The choice of mode of entry is affected by the nature of the bank's 
business (i.e. whether the intention is to provide only wholesale services or retail services as well), and several host country factors, such as the existen ce of business restrictions for branches or outright 
prohibitions to establish as a branch.  The distin ction between branches and subsidiaries also has 
implications for home-host country regulation and supervis ion, and for parent bank responsibility and 
financial support.   
78. Internationalization has also happened in insu rance markets, reflected in increasing market 
shares of foreign insurers (Table 12).  In the case of insurance companies expanding operations 
abroad, the main determinants are high growth po tential in the host country, especially in emerging 
economies;  the size of the insurance market and of  the overall financial development in the country 
of origin;  the difference in wages and in the cost  of capital between the or igin and the destination 
countries;  the integration between origin and d estination countries;  and geographical proximity, 
coupled with large market size, more efficient le gal environment, more developed telecommunication 
systems and higher level of education. 
79. International financial activity has traditiona lly been dominated by developed country 
suppliers.  However, in recent times, developing countries have become important sources of lending 
and investment, particularly to other developing countries.  For example, South–South syndicated 
lending grew from US$0.7 billion in 1985 to US$6.2 billion in 2005, and th e number of developing 
countries receiving such flows, from 19 in 1985 to 41 in 2005.  South-South bank ownership is also 
becoming significant.  Between 1995 and 2006, North-South banking grew by 61 per cent, while South-South banking grew by 52 per cent.  The patte rn of ownership differs, however, significantly 
by region.
58   
80. Developing country banks tend to invest in deve loping countries of a relatively lesser level of 
development, taking advantage of their experience in  dealing with challenging contexts.  Although in  
terms of numbers, South-South banks are most strongly represented in upper middle income countries, the share of South-South banks in total foreign banks are most important in low income 
                                                     
 
57 There is evidence that banks prefer to expand towards countries where the degree of competition 
with domestic banks is lower, for example, because lo cal banks are less efficient and where the institutional 
framework is more favorable to bank ing activities, because ther e is a high-quality legal and institutional set-up 
and little regulatory restriction on banking. 
58 This data and the discussion on this topic draws on World Bank (2008).  S/C/W/312 
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  countries.  Nevertheless, South-South banking still represents a small portion of total banking 
activities.  Its significance is more important in te rms of the number of institutions present in foreign 
markets (up by 19 per cent and 15 per cent in S ub-Saharan Africa and Latin America and the 
Caribbean, respectively) than in terms of banking  assets, where the share of South banks in most 
banking markets (with the exception of Sub-Saharan Africa) is only about 1 per cent of total bank 
assets.   
81. A second major trend over the 25 years that preceded the financial crisis in 2007-2008 
concerned financial policy reform and liberali zation.  The process involved both developed and 
developing economies, as part of a general tre nd towards more market-oriented economic policies.
59 
However, the reform processes differed substantiall y in timing, content and speed. While financial 
reforms advanced substantially in virtually all countries, income groups and regions, higher-income 
economies generally set the pace. 
82. Occasionally, previous reforms were reversed.  Overall, the period of more intense changes 
initiatives was the first half of the 1990s, partly due  to extensive reform in transition economies, but 
also in Western Europe and Latin America.  The pr ocess of financial liberalization in East Asia was 
much more gradual than in Latin America.  Inter estingly, the 1997 financial crisis did not lead to 
sharp reversals of reform in Asia.  The fastes t episodes of financial liberalization took place in 
transition economies, which by 2002 had almost clo sed the gap with Latin America and East Asia. 
83. A process of consolidation, convergence, and fi nancial innovation has also taken hold in the 
financial services sector.  Generally, over the last decades, large financial institutions in all segments 
of the industry (banking, insurance, securities) have  consolidated by merging with or acquiring other 
companies in the same lines of business.  The change  has been particularly dramatic in the banking 
sector, driven by the need for scale, regulatory chan ges, advances in technol ogy, and, perhaps most 
importantly, the craving for market share.  In the US, for example, 40 large banking organizations 
operating in 1990 had consolidated into only 6 organi zations by August 2004 (with a market share of 
40 per cent in the US alone).60  Consolidation has also proceeded on a cross-border basis, particularly 
in Europe.61   
84. Convergence among the principal segments of the financial services industry – banks, 
securities firms and insurance companies – pr ompted in many cases by the breaking down of 
previously imposed "fire walls" between the diffe rent subsectors of the industry, has blurred 
traditional distinctions between banks, insurance co mpanies, and brokerage/investment firms, with 
consequences for competition in the marketplace.  Cases in point are brokerage firms offering their 
clients banking products (such as deposit accounts, debit cards, cr edit cards, funds transfers, ATM 
withdrawals, check writing, etc.), and commercial banks offering brokerage services (advise, trading 
capabilities, etc.).   
85. Convergence has also taken the form of firms in different sectors competing by offering 
functionally similar (although different in kind) pr oducts to satisfy their customers' needs.  For 
example, in the area of fixed return investment , banks offer corporate bonds and treasury bills, or 
certificates of deposits;  while investment and in surance companies offer guaranteed investment 
contracts or fixed annuities.  Increasingly, financ ial intermediaries, particularly commercial banks, 
have built their profitability on fee-based services (including asset management) instead of interest 
income. 
                                                      
59 See Marchetti (2009 a).  
60 US Government Accountability Office (2004). 
61 See Deloitte Research (2009).   S/C/W/312 
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  86. Financial innovation has taken basically two form s.  On the one hand, the introduction of new 
IT technologies allowed financial intermediaries to  better organize themselves by introducing office 
automation or by outsourcing different functions, such  as client data management, or the clearing and 
settlement of payments.  Technology also facilita ted the expansion of pr oduct delivery mechanisms, 
through the use of smart cards, ATMs, online banking, mobile banking, etc.62  On the other hand, 
financial innovation also consisted of the introducti on of new financial products, such as stock-market 
index funds, futures and forwards, options, swaps,  credit default swaps, and securitisation.   
87. All these trends have changed the risk profile of financial institutions  and the linkages among 
them.  Credit risks in particular have changed as a result structural changes in the industry.63 
IV. THE FINANCIAL CRISIS:  ORIGINS, EFFECTS, AND POLICY ACTIONS 
A. FACTORS BEHIND THE FINANCIAL CRISIS  
88. The underlying causes of the financial crisis and how it was transmitted acro ss firms, sectors, 
and borders will be studied and debated for years.  Ne vertheless, it is widely agreed that the crisis is 
the result of the interaction of numerous macroeconomic and microeconomic forces that had been 
developing over the last decade(s).  None of them alone can fully explain this  crisis.  The purpose of 
this section is not to provide a t horough explanation of individual factor s, but give an indication of the 
root causes and their possible interaction.64   
89. The financial crisis that broke out in the mo st advanced markets in the summer of 2007, and 
that spread quickly to the rest of  the world leading to a global econom ic crisis, was the culmination of 
an exceptional credit boom and an unprecedented expansi on of leverage in the financial system.  This 
had been fuelled by an expansiona ry monetary policy in industrialized markets (particularly in the 
United States) that led to historically low real interest rates and abundant liquidity.65   
                                                      
62 The expansion of banking and securities activities over the Internet has prompted International 
Standard Setting Organizations to take action in this area.   Two issues addressed by these organizations may be 
of interest in the GATS context:  firstly, how to identify cr oss-border transactions targeted at local consumers;  
and, secondly, how to determine what country has jurisdiction over the tran saction – the country of the supplier 
or the country of the consumer.  In July 2003, the Basel Committee on Banking Supervision (BCBS) issued 
guidance to home and host country supervisors on the Management and Supervision of Cross-Border Electronic 
Banking Activities.62  The issues raised by the licensing of cross- border financial intermediaries has also been 
tackled by the International Organization of Secur ities Commissions (IOSCO).  In February 2004, IOSCO's 
Technical Committee issued a report on the Regulation of Remote Cross-Border Financial Intermediaries. 
63 US Government Accountability Office (2004).  
64 For different perspectiv es on the crisis, see inter alia  Bank for International Settlements (2009);  
Blundell-Wignall et.al (2008);  De Larosière Report (2009);  OECD (2008);  Tirole (2008) and the Turner 
Review (2009).  
65 Safe for the period 2005-2006, monetary policy in  the US remained expansive, with periods of 
negative interest rates.  For example, from 2001 to mid-2003, the US Fed Funds rate fell from 6.5 per cent to 
1 per cent, and was kept at this level for almost a y ear before being increased.  These moves were certainly 
policy-motivated.  The US Federal Reserve had started to reduce interest rates as a response to the 2000 dot.com 
and stock exchange crash and subsequent recession, and refrained from monetary tightening in view of the 
economy's vulnerabilities and the seemingly low inflation expectations.  Although there is no consensus among 
economists, global imbalances may have also contributed to this environment.  Driven by high savings rates, oil exporting countries, plus Japan, China, and some othe r East Asian emerging economies had accumulated large 
current account surpluses, while large deficits (due to low levels of saving) emerged primarily in the United 
States.  Whenever savings exceed domes tic investment, the surplus countrie s accumulate claims on the rest of 
the world. Moreover, surplus countries are committed to fixed or managed exchange rates, these rising claims 
take the form of central bank reserves, which tend to be invested in apparently risk-free or close to risk-free S/C/W/312 
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  90. A particular feature this time was that the credit boom was combined with the expansion of 
(riskier) lending to borrowers with little creditworth iness (the so-called "sub-prime"), the increasing 
use of complex financial products, a vigorous " search for yield" by investors and financial 
institutions, the mispricing of risk (which is usual in contexts of excessively low interest rates), the 
degradation of credit standards, and the apparent failure of regulators and supervisors to restrain 
excessive risk-taking.
66 
91. The financial crisis also revealed deficiencies in financial intermediation.  Financial markets 
have always been complex.  Nonetheless, financial innovation, particularly in the field of "structured 
finance", drastically increased their complexity.67  Securitisation allowed the repackaging of 
mortgages – traditionally illiquid assets originated a nd held by local banks – into higher-yielding 
complex securities with triple-A rating.  Mortgage -backed securities or more complex products based 
on those securities were in high demand by banks and investors around the world who were “searching for yield” in an environment characterised by low interest rates.  As evidenced later, the 
financial products they flocked to buy entailed risk s that were difficult to assess and price.  In 
addition, no active secondary market existed for ma ny of the new instruments, and the associated 
opacity of the credit risk distribution made it difficult to keep track of the risk exposures.  The crisis 
revealed that both the securitization process and the so-called "originate-and-distribute" model were 
mired with agency problems which blurred investors' risk perception and prevented them from playing a disciplining role in the securitisation process.
68 
92. To compensate for the lack of transparen cy in high-yield products, investors relied 
excessively on the credit ratings issued by credit ra ting agencies (CRAs) rather than conducting their 
own quality assessments, e.g. of structured finance pr oducts.  Additionally, the crisis raised questions 
                                                                                                                                                                     
government bonds or government guaranteed bonds.  Over the years from 1999 to mid-2007 – from the end of 
the Asian crisis to the beginning of the current crisis – the cumulative US  current account deficit was US$4.6 
trillion.  The US Treasury estimates that  by the end of 2007, US gross external debt was roughly US$13.4 
trillion, nearly four times what it had been just nine  years earlier (Bank for International Settlements, 2009, 
page 5). 
66 The crisis cannot be fully understood without looking into the real estate market, particularly in the 
United States, where a bubble was being built up, under the presumption of continuous rising real estate prices.  
67 Structured finance is a generic term, usually defined as a financing transaction where legal structures 
are used to isolate asset or entity risk, resulting in decreased risk for the originator.  Within the scope of 
structured finance is securitization, including widely used  instruments such as asset-backed securities (ABS), 
residential mortgage-backed securities (RMBS), co mmercial mortgage-backed securities (CMBS) and 
collateralized debt obligations (CDOs).  Some view structured finance as also including derivatives and other risk transfer instruments.  Securitisation had always been predicated on the belief that by slicing, structuring and 
hedging, it was possible to "create value", offering investors combinations of risk, return, and liquidity which 
were more attractive than those availa ble from the direct purchase of the underlying credit exposures. See Jobst 
(2007).  
68 Indeed, the securitisation proce ss involves transactions among par ticipants with diverse incentives, 
that can be characterised as principal-agent relationships .  As such, they are fundam entally vulnerable to certain 
adverse behaviour since agents seek to maximise their benefits while principals cannot fully observe and control 
the agents’ actions.  Simply put, the model – which is at the core of securitization activities– implies that banks 
originate loans or purchase them from specialized brokers and tr ansfer them to a special  purpose vehicle (SPV), 
which then packages them into Collateralized Debt Obligations (CDO) for sale to other investors.  Over time, 
the model ended up working on the basis of misaligned incentives:  1) originators (mortgage brokers, loan 
associations, and commercial banks), distributors (inves tment banks, but also institutions like Fannie Mae), and 
managers had insufficient incentives to generate and provide initial and ongoing information on the quality and 
performance of underlying assets;  2) regulatory arb itrage (the pre-Basel II ca pital adequacy framework 
encouraged banks to securitise a ssets through instruments with low capital charges);  and 3) distorted 
compensation schemes in financial institutions encouraged disproportionate and insufficiently checked risk-
taking with no regard to longer-term risks.  See Jobst (2007).   S/C/W/312 
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  about the CRAs' proper execution of their functions.  According to widespread criticism, the agencies 
failed to adequately distinguish between the risk iness of different securities, and were subject to 
conflicts of interest (e.g.  ear ning fees both from advising issuers on how to structure bonds and 
derivatives and from actually rating those securities). 
93. The growing size of the financial sector was accompanied by an increase in total system 
leverage, which – considered in a ll its forms – played an important role in driving the credit boom and 
in creating vulnerabilities in the financial system that have increased the severity of the crisis.69  
Additionally, with the benefit of hindsight, it a ppears that extensive regulatory arbitrage was under 
way.  In other words, financial institutions were transferring a large portion of financial 
intermediation from more-heavily-regulated-banks to non-bank financial institu tions such as broker 
dealers, hedge funds, and structured investment vehicles (SIVs).70  As a result, the run up to the crisis 
saw the rapid growth of off-balance sheet vehi cles, which were highl y leveraged and became 
systemically important due to their interconnecte dness with many other financial institutions.   
94. At the same time, the pattern and the locus of  maturity transformation was changing, creating 
huge and inadequately appreciated risks.  A growin g proportion of aggregate maturity transformation 
had not been occurring in banks, but in the so-ca lled "shadow banking system", which had come to 
perform large-scale maturity transformation between short-term promises and much longer-term instruments held on the asset side;  and in inv estment banks, which increasingly funded holdings of 
long-term maturity assets with shorter-term liabilities like repurchase agreements (repos). 
95. Remuneration schemes based on rewarding short-term profits tended to predominate 
throughout the system, distorting risk management and internal controls, often to the detriment of the 
longer-term health of financial institutions.  Additio nally, risk management was  complicated by the 
fact that certain risks are hard to quantify and me asure.  Inadequate accounting rules, and insufficient 
transparency at all levels further complicated matters.   
96. The previous discussion suggests that none of the root causes of the financial crisis can be 
attributed to services trade liberalization as provide d for in the GATS, namely granting market access 
and national treatment.  For one, excesses in monetary policy or the build-up of a bubble in real estate 
markets, and the policies that could potentially curb the detrimental effects arising from those 
situations, are in no way connected to liberaliza tion commitments undertaken by Members.  On the 
other hand, malfunctions of the financial services sect or in recent years seem to be more related to 
idiosyncrasies of the sector (e.g. search for yi eld, absence of due diligence, lowering of lending 
standards) and regulatory loopholes (e.g. regulator y arbitrage, inadequate capital and liquidity 
regulation, unregulated suppliers).  Even though a large exposure to foreign financial institutions and 
                                                     
 
69 Regulatory measures may have played a role as well.  In April 2004, the US Securities and Exchange 
Commission (SEC) exempted five investment banks – the three that later collapsed plus Goldman Sachs and 
Morgan Stanley – from a 1975 rule to allow them to more than double the leverage they could keep on their balance sheets and remove discounts on the assets they had been required to keep to protect them from defaults.  
The 1975 so-called "net capital rule" was intended to allow the SEC to oversee brok er-dealers, or companies 
that trade securities for customers as well as their own accou nts.  It required that broker dealers limit their debt-
to-net capital ratio to 12-to-1, and that they issue an early  warning if they began approaching this limit.  Dealers 
were forced to stop trading if they exceeded the limit.  With the exemption from this rule,investment banks were 
allowed to reach leverage ratios of up 22-to-1 (e.g.  Goldman Sachs) or even 30-to-1 (Morgan Stanley).   
70 Under the Basel I capital accord, mortgages held on  the balance sheet were subject to a 50 per cent 
capital charge (i.e. 4 per cent, instead of the minimum 8 per cent of capital required), securities backed by 
mortgages were subject to a 20  per cent capital charge;  and there is capital charge wh en mortgages are sold to a 
special purpose vehicle, such as a mo rtgage conduit or a Structured Investment Vehicle (SPV) sponsored by the 
bank.   S/C/W/312 
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  markets may exacerbate the transmission of shocks (I MF 2007), the crisis cannot be attributed to the 
involvement of foreign financial institutions per se .  
B. I
MPACT OF THE FINANCIAL CRISIS ON THE SECTOR  
97. Although data are still scarce and not equally av ailable across countries, the impact of the 
financial crisis on output and employment in the sect or seems to have been immediate and significant.  
For example, in the United States, real GDP in fi nancial services and insurance declined for five 
consecutive quarters between Q4 2007 and Q4 2008 incl usive, before resuming positive growth rates 
in 2009.71  Employment in the US financial services sect or has also been strongly affected.  Between 
early 2008 and end-2008, total employment in the sect or contracted by 1.8 per cent (148,000 jobs) to 
8.1 million.  Almost 74 per cent of the decrease happ ened in the second half of 2008.  In the European 
Union, employment in the sector fell steadily betwee n the last quarter of 2007 and the third quarter of 
2008, when 646,000 jobs were lost.72   
98. By the same token, the financial crisis has sev erely hit trade in the sector, as captured by 
Balance-of-Payments statistics.73  The sharp fall in the value of financial assets following the crisis in 
financial markets – some US$16 trillion only in 200 8 according to the McKinsey Global Institute – 
has translated in a steep reduction in the commission s and fees earned by resident banks, and, thus, a 
collapse in exports of financial services.  (Chart 9).  The decline in the value of world assets is the 
largest setback since 1990.  Indeed, the financial crisis stopped the process of almost uninterrupted growth of financial assets of the last two decades.  The damage has been widespread, with financial 
assets declining in most countries around the world. 
99. Having recorded the fastest growth rate among services in 2007 (32 per cent in current US$), 
world exports of financial services are estimated to  have expanded by only 2 per cent in 2008 due to 
the year-on-year decline that started in the th ird and fourth quarters of 2008.  The downslide has 
continued into 2009.  According to preliminary es timates, world exports of financial services dropped 
by 26 per cent in the first quarter of 2009 on a year-on-year basis.
74  Declines since the third quarter of 
2008 have been significant for all leading exporters, as shown in Chart 10.  Preliminary figures for the 
first quarter of 2009 show an important fall in e xports of leading exporters, ranging from 13 per cent 
for the United States to an estimated 30 per cent fo r the European Union.  However, some of the 
sharpest declines in the first quarter of 2009 were recorded in Asian economies, such as in Hong, 
Kong, China (a drop of 32 per cent), Chinese Taipei  (53 per cent) and the Republic of Korea (56 per 
cent).   
100. According to preliminary quarterly figures for the second quarter of 2009, the United States' 
exports of financial services seem to have stabilized, with a decline of only 1 per cent (compared to 13 
per cent in the previous quarter).  European fi nancial services exports ha ve dropped another 26 per 
cent in the second quarter of 2009.   
101. The international banking market has also been severely affected by the crisis.75  International 
banking activities started to reflect the tensions on bank balance sheet s in the second quarter of 2008, 
when international bank lending fell by an unpr ecedented US$1.1 trillion (Chart 11).  While inter-
                                                      
71 US Bureau of Economic Analysis (2009) 
72 Escudero (2009) 
73 Exports of financial services cover mainly fees and commissions earned by resident banks (and other 
financial institutions) arising from financial asset ma nagement activities and transactions in financial  
instruments with non residents.  These commissions are primarily related to the value of the managed assets.  
Similarly available statistics for foreign aff iliates services trade are not still available. 
74 WTO "International Trade Statistics 2009". 
75 The analysis on lending is based on information on BIS Quarterly Review (Q1 to Q4, 2009).   S/C/W/312 
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  bank lending accounted for most of the overall dec line (- US$812 billion), lending to the non-banking 
sector (mainly to the US, UK, and Japan) also fell (for the first time since 1998).  Tensions in the 
international banking market continued into the third quarter of 2008, but this time total international 
lending actually grew slightly (by US$248 billion), driven mainly by greater inter-office activity.  As 
a matter of fact, inter-bank lending (including in ter-office claims) grew by US$150 billion, but, if 
considered net of inter-office activity, lending to othe r (unaffiliated) banks actually fell in the third 
quarter as well, this time by US$173 billion, re flecting the severe market strains that followed 
Lehman Brothers' failures in Sept ember 2008.  With inter-bank market s effectively shut down by end-
September 2008, banks sought dollar financing dir ectly from monetary authorities, and cut their 
lending to emerging markets.76   
102. International bank lending contracted by r ecord amounts in the fourth quarter of 2008 
(-US$1.9 trillion), in the wake of the failure of Lehman Brothers.  The d ecline in both inter-bank 
lending and lending to the non-banking sector (partic ularly in the US) reflected reduced lending, 
disposal of assets and write-downs.  As banks' f unding pressures intensified, governments and central 
banks reacted with an unprecedented policy response. 
103. Tensions in international financial markets bega n to subside in the first quarter of 2009, and 
the contraction of banks’ international balance sh eets slowed.  Inter-bank lending still fell by an 
amount comparable to that in the fourth quarter  of 2008 (a bit more than US$800 billion), reflecting 
protracted funding pressures, but the decline in credit to non-banks was only one fourth of that registered in the previous quarter.  Internationa l lending continued to contract during the second 
quarter of 2009, albeit at a much slower pace.  This time, the decrease was entirely driven by a 
contraction in inter-bank lending (- US$481 billi on), while internationa l lending to non-banks 
increased slightly (US$4 billion).   
104. Cross-border international lending to emerging markets started to slow down in the third 
quarter of 2008, then dropped sharply in the following two quarters (Q4 2008 and Q1 2009) and did 
not stabilise until the second quarter of 2009, when it recorded a modest overall increase of US$5.3 
billion.  The sharpest declines over this period we re registered in Central and Eastern European 
countries (more than US$50 billion in Q4 2008) and in Asia-Pacific (more than US$150 billion in Q4 
2008), which reflect the relatively higher depende nce of these two regions on cross-border lending 
vis-à-vis  lending booked by banks established in their territories.  (Charts 12 and 13). 
105. While there are differences across regions, availabl e data suggest that, in real terms, foreign 
banks’ local lending and deposit-taking in local curre ncies have remained relatively stable over the 
period.  International banks local positions in all emerging markets decreased in the second quarter of 
2009 for the first time since the beginning of the cris is, but only moderately (by 0.1 per cent for local 
lending, and 0.6 per cent for local deposit-taking).  In most countries, the decline in local currency 
lending was accompanied by a fall in real economic activity (e.g.  Argentin a, Chile, Chinese Taipei, 
Korea, Mexico and Turkey), although there are ex ceptions, such as China and India, where lending 
shrank but real output increased.   
106. How has the crisis affected financial service suppliers?
77  Banks, particularly investment 
banks, have certainly borne the brunt.  Neverthele ss, despite huge losses last year, Western banks 
                                                      
76 It is not clear whether the drop in lending to developing economies was demand or supply driven.  
While lending was drastically cut in banking systems with  large exposure to US mortgage-backed securities in 
banks' balance sheets, in some places, foreign banks w ithout such balance-sheet pr oblems also reduced cross-
border (and even local) lending pr esumably because of slowing economic activity in the developing economy 
concerned.  
77 The following analysis is based on data in The Banker (2009) and The Economist (2009). S/C/W/312 
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  have kept their dominance in the rankings of the bigg est banks due to massive capital raising.  Profits 
virtually collapsed in 2008, with total profits of  the top world's 1,000 banks plunging by 85 per cent 
from US$780 to US$115billion, and return on capital sinking from 20 per cent in 2008 to just 2.7 per cent in 2009.  After four years of above 20 per cent profit growth, last year’s figure stayed relatively 
flat with a loss of 0.7 per cent.  For the first time  in the last 39 years, the world's top 25 banks – which 
account for almost 40 per cent of the top 1000 banks' Tier 1 capital and almost 45 per cent of its total 
assets – recorded losses totalling US$32.4 billion.  Also , there was a surge in bank failures in the US 
in 2008.  A total of 25 depos it-taking institutions, with comb ined assets of US$372 billion, 
collapsed.
78  Besides the failed banks, the number of in stitutions on the US deposit insurer’s list of 
problem reached 252, with total assets of around US$159 billion. 
107. As banks have written off losses, they have also recapitalised – often with government 
support – so that total Tier 1 capital has risen by  9.7 per cent to US$4,276 billion.  Assets have grown 
by 6.8 per cent to US$96,395 billion but at a much sl ower pace than in previous years, when the 
assets basically doubled between 2003 and 2008. 
108. The investment banking industry has been partic ularly affected by the crisis.  With an 
estimated US$69.5 billion earned in 2009, global investment banking fees were down 7 per cent compared to 2008 to reach the lowest total sin ce 2004.  Fees from equity capital markets underwriting 
were the main source of fees for investment banks, co mprising 36 per cent of the total.  Traditionally, 
M&A advising used to be the largest fee generator for investment banks, as has been the case for the 
past six years.   
109. Surprisingly, the world ranking of the most im portant banks, measured in terms of Tier 1 
capital, has changed very little in the aftermath of the crisis.  (Tables 13 and 14).  Aside from three 
new entrants (Goldman Sachs, Morgan Stanley, and Agricultural Bank of China), the top 25 world 
banks continue to be composed mainly of much th e same institutions as in the past, dominated by US, 
European and a couple of Japanese banks.  Even when government capital injections are excluded 
from the calculation, the ranking does not change drastically.  Industry consolidation has played a key 
role in three of the top five positions.  JP Morgan 's takeover of Bear Stearns and Washington Mutual 
propelled it to first position;  Ba nk of America's purchase of Merril Lynch pushed it to second place;  
and Wells Fargo jumped from 23
rd to sixth place after the acquisition of Wachovia.79 
110. The relative stability of the world banks ranking ma y be attributed in part to capitalization by 
governments and in part to intensive issuance activiti es in the capital markets.  Globally, the financial 
services industry has raised US$998.9 billion in total bank capital since the crisis began, against a 
total of US$1,040.7 billion in write-downs and losses.  In Europe and Asia, capital raising has 
exceeded losses, at US$422.3 billion versus US$420.7 billion in the former and at US$75.9 billion 
against losses of US$37.3 billion in the latter.  Only in the Americas have losses outpaced capital 
raising, with US$500.7 billion versus US$582.6 billion.   
111. More significantly, because regulators and investors have raised the bar in terms of what level 
of capital is now deemed adequate, the capital-to-asset  ratio has increased overall, if only marginally.  
On an aggregate basis, the top 1000 banks have in creased Tier 1 capital to assets to 4.43 per cent (or 
                                                      
78 The failure of Washington Mutual accounted for $307 billion of the total and was the largest US 
bank failure in history.  The bank was eventually absorb ed by JPMorgan Chase, with  governmental assistance.  
Further large failures were averted as weakened instituti ons were acquired by others with healthier balance 
sheets. 
79 UK banks Lloyds and HBOS merged too late to be included in The Banker's ranking, but would have 
entered in 16th place.    S/C/W/312 
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  11 basis points).  Like Tier 1 capital, assets have grown by 6.8 per cent this year, to US$96,395 
billion.   
112. The crisis hit the US and West European banks hardest, with some of the latter requiring full 
or partial nationalization to survive.  The general pa ttern has in fact been h eavy losses in the financial 
institutions of industrialized countries and compara tively benign situations in most institutions in 
emerging economies.  A look at profitability of th e Top 1000 world banks shows that the "winners" 
have been those banks that stuck to what might be  considered to be the basics of banking – taking 
deposits and lending in their home markets.  Some what sheltered from global competition, Chinese 
and Indian banks have remained broadly profitable, with the bigg est Chinese banks advancing in the 
world banks' rankings.80  Asian banks, excluding Japanese one s, have significantly altered the 
composition of the top 1000 ranking.  There are currently 193 banks from Asia among the top 1000 (up from 174 two years ago), while the number of banks from the US and the EU has dropped from 
185 to 159 and from 279 to 258, respectively. 
113. Insurance companies have suffered from the crisis  as well, although not on the same scale as 
banks.  Insurers were hit by the sharp fall in stoc ks and corporate bonds in their investment portfolios 
during the peak of the financial crisis.  They have  also been hurt by a sustained fall in demand for 
insurance coverage, in the aftermat h of economic downturn.  Global insurance premiums declined by 
2.0 per cent in real terms in 2008.  This fall was entirely explained by the performance of 
industrialised countries, where premiums dropped by  3.4 per cent.  In emerging economies, however, 
premiums rose by 11 per cent.
81   
114. By December 2009, only a few large insurers in the US and Europe had been forced to seek 
government assistance to ensure th eir survival, including Aegon and ING in the Netherlands, and 
Hartford Financial Services in the US.  The Amer ican International Group (AIG) is a special case 
insofar as it was heavily invested in credit in surance, and required partial nationalization. 
115. Three factors may explain why insurers came out  of the downturn in better shape than banks.  
First, unlike banks, they are not reliant on short- term financing to fund th eir operations.  Second, 
where bank depositors can move funds fairly easily to another bank, insurance policy holders face 
higher switching costs since policies are usually fo r longer-term periods.  Third, insurers have 
historically been more focused on risk management  than banks, and instead of securitising their assets 
and selling them off (as banks have done), insurance companies retain risk, which has prompted them 
to be more disciplined when underwriting policies.   
116. Available data confirm that insurers have b een far more resilient than banks during the 
financial turmoil.  Of the US$1.7 trillion that fina ncial institutions wrote down from the start of the 
crisis to early December 2009, insurers accounted for losses of US$234 billion or 13.7 per cent of the 
total, with AIG alone accounting for US$98 billion in lo sses.  By region, it is estimated that insurers' 
losses have been concentrated in the US (82 per cent of the total), with less in Europe (17 per cent) 
and very little in Asia (1 per cent).82 
C. FINANCIAL SECTOR POLICIES IN RESPONSE TO THE CRISIS  
117. The financial crisis does not seem to have prompted a widespread introduction of trade 
restrictions in financial services.  With only fe w exceptions, most countries have maintained their 
                                                      
80 Measured in terms of total asse ts, there is little change among the top ten banks.  However, three 
banks made it to the top 25 in 2008, namely the Agriculture Bank of China, Bank of China, and Wells Fargo. 
81 SwissRe (2009).  
82 Bloomberg estimates, quoted by The Economist (2009).  S/C/W/312 
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  policies regarding typical market access limitations  (e.g.  foreign equity caps, incorporation 
requirements).
83  In general, policies have focused on pr oviding support to financial institutions in 
various forms, and closing regulatory loopholes that  were considered to have contributed to the 
crisis.84  These policies, which for the most part were introduced in the second half of 2008 in the 
wake of the collapse of Lehman Brothers, and wh ich may generally be considered as necessary to 
ensure financial sector stability in the wake of the crisis, seemed to have served their purpose thus far.  
In particular, they helped avoid widespread bank fa ilures, and allowed markets to operate in a more 
normal – if not necessarily fully restored – environment.85   
118. Support to the financial sector has usually ta ken the following forms, with some countries 
applying more than one approach at the same time:86   
(a) Separation of "good" assets from "bad" assets, and placing the latter off banks' 
balance sheets.  The basic objective is to a llow affected financial institutions to clean-
up their balance sheets and re-start lending un der more "normal" circumstances.  This 
objective can be attained through various mechanisms, for example through 
purchasing troubled mortgage assets from banks and other lenders – basically 
swapping troubled assets for cash.  
(b) Takeovers of failing banks by better capitalized banks, entailing government support 
in some cases; 
(c) Recapitalization of troubled financial ins titutions.  Recapitalisation schemes (for 
which specific amounts have been earmarked ) were generally made available to 
financial institutions falling under specifi c eligibility criteria, with a view to 
strengthening the capital base of fundame ntally sound institutions, improving the 
functioning and stability of the banking system as a whole, and ensuring proper financing to the wider economy.  In add ition, liquidity positions institutions have 
been enhanced through the provision of loans.  Recapitalization of individual 
                                                     
 
83  Among the exceptions is Malaysia.  In April 2009, for example, the Central Bank of Malaysia 
announced a broad liberalisation package focusing on the issuance of new licen ses, increments in foreign equity 
participation, and further operation flexibility in both the conventional and Islamic financial sectors.  Other 
countries, such as India, suspended on-going liberaliza tion initiatives.  Citing the current global financial turmoil 
and concerns regarding the financial strength of banks around the world, the Reserve Bank of India (RBI) 
decided – as part of its annual policy for the period 2009/2010 – not to change its policy on presence of foreign banks in the country.  As a conseque nce, the second phase of the "Roadm ap for Presence of Foreign Banks in 
India", which was supposed to be implemented as of April 2010, has been put on hold.  That second phase 
included the extension of national treatment to wholly-owned subsidiaries of foreign banks;  the dilution of stakes in wholly-owned subsidiaries (so that 26 per cent of the paid up capital be held by residents Indians);  and 
allowing foreign banks to enter into mergers and acquisitions with any private sector bank in India subject to an 
overall limit of 74 per cent.  However, RBI relaxed some  operating conditions affecting foreign banks (e.g., the 
employees of foreign banks are allowed to offer services over larger distances from their offices (30 km instead 
of 15km) all banks may set up ATMs freely without approval).  For details of both packages, see the D-G 
Monitoring report. 
84 This section does not cover monetary policies intr oduced in the wake of the financial crisis.  For a 
description and analysis of the different types of monetary policies implemented thus far, see BIS 79th Annual 
Report (Chapter VI.  Policy responses to the crisis). 
85 For initial analyses of the impact of measures in response to the financial crisis, see IMF (2009), 
Chapter III;  King (2009);  Panetta et. al.  (2009);  and Petrovic and Tutsch (2009).  
86 For a list of measures, as well as further explana tions, see Annex 3 to the Report to the TPRB from 
the WTO Director-General on the Financial and Ec onomic Crisis and Trade-Related Developments 
(1 July 2009).   S/C/W/312 
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  financial institutions has been decided so metimes on a case-by-case basis, and not as 
part of a generally available programme. 
(d) Nationalization of financial institutions, with a view to restructuring them.  In some 
cases, nationalisation has taken place after other measures had turned out to be  
unsuccessful to avoid the failure of a systemically important institution. 
(e) Expanded government guarantees for different forms of bank liabilities.  While some 
of these measures have targeted specific fi nancial institutions, ma ny others constitute 
more general "rescue packages" for the whole sector, whose effects will only materialize over time, depending on how  they are implemented.  Expanded 
government guarantees have taken basically tw o forms:  increases in the threshold on 
savings eligible for deposit insurance, and provision of loan guarantees, including 
guarantees on inter-bank loans or on banks' issues of debt.
87  The main stated purpose 
of these measures has been to ensure ba nks' continued access to funding.  While 
deposit insurance guarantees apply to the liab ility side of banks' balance sheet, loan 
guarantees apply to the asset side of banks.  These guarantees are a form of insurance 
that covers a lender – typically a commercial bank – against default on its loan to either another financial institution or a non-fi nancial institution.  In light of the dry up 
of inter-bank liquidity last year, several governments have granted guarantees for inter-bank lending, with a view to unloc king credit among financial institutions in 
particular and enhancing credit availability more generally.  More recently however, 
countries have also resorted to more gene ral loan guarantees, aiming at compensating 
for the insufficient loan activity by pr ivate banks and thus improving the access of 
firms to investment and working capital lo ans.  These guarantees confer an advantage 
by relieving the final beneficiaries (e.g.  cor porations) of higher costs in terms of fees 
and/or interest rates, which they would ot herwise have to bear under normal market 
conditions. 
119. As recently reported by the Financial Stability Board (2009 b), not all available facilities or 
guarantees have actually been used;  a number of polic ies have expired without notable market impact 
or the need for successor programmes;  and other support measures that were introduced during the 
crisis have been made permanent, including incr eases in minimum deposit insurance.  Other policies 
are considered temporary, but still remain in pl ace.  For example, temporary increases in deposit 
protection, adopted by 26 of the 47 jurisdictions that  took action in this area during the crisis, will for 
the most part be terminated in 2010 or 2011 (the  remaining 21 jurisdictions introduced permanent 
changes to deposit protection).  Another example co ncerns most debt guarantee schemes, which have 
been made more expensive over time or whose availability has been made dependent on market 
conditions.  Finally, programmes for capital injections to troubled in stitutions or for the removal of 
exposures to toxic assets have generally been of a one-off nature.
88 
120. From a trade perspective, it is worth taking in to account that these measures, which in most 
cases constitute some form of state aid or subsidy, may have an effect on competition in the financial 
services industry, both in domestic markets and intern ationally (particularly if there are significant 
opportunities for international arbitrage).89  Such considerations may have prompted, for example, the 
                                                      
87 At the same, central banks, in their roles as ‘lenders of last resort’ continued to be a source of 
liquidity support to financial institutions, most often in the form of loans extended against collateral. 
88 See the explanation and examples in Financial Stability Board (2009 b). 
89 Discussing the potential coordination of exit strategies, the Financial Stability Board (2009 b) has 
recently stated that "In most cases, members noted that  decisions on the removal of emergency measures are 
taken primarily on an assessment of th e health of the domestic financial system and the ability of intermediaries S/C/W/312 
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  European Commission to issue guidance on the desi gn and implementation of State aid in favour of 
banks (including public guarantees, recapitalisation measures and impaired asset relief) in order to 
ensure that emergency measures for reasons of fi nancial stability guarantee a level playing-field 
between banks located in different EU Member States as well as between banks who receive public 
support and those who do not.
90 
121. The impact of the measures on cross-border flows depends inter alia  on the willingness and 
ability of agents to arbitrage between countries.  There are examples, such as the introduction of 
government guarantees for banks' debt or changes in  retail deposit insurance mechanisms, where the 
potential for arbitrage was significant when the measures were initially introduced in an 
uncoordinated manner.  The timing and context, in which protection for depositors has been 
increased, reflects the nature of relations between banking markets, and shows that the financial 
stability rationale has been accompanied by a "lev el-playing-field" concern in the eyes of policy-
makers and regulators.91   
122. Such concerns have also been mentioned as part of the factors that the international 
community should look at when figuring out the appropriateness and timing of the unwinding of 
                                                                                                                                                                     
to fund themselves and to raise ne w capital where necessary on private markets.  As highlighted above, a 
number of special measures have already been withdr awn and there have been clear policy announcements 
regarding the withdrawal of others.  Members recogn ized, however, that the emergency measures have 
distortionary effects on the allocati on of capital across borders as well as  within them....  The impact of the 
measures on cross-border flows depends on a range of  characteristics such as the willingness and ability of 
agents to arbitrage between countries." 
90 See Communication from the Commission – The application of State aid rules to measures taken in 
relation to financial institutions in the context of the curr ent global financial crisis, OJ C 270, 25 October 2008;  
Communication from the Commission – The recapitalisation of Financial Institutions in the Current Financial Crisis:  Limitation of Aid to the Minimum Necessary and Safeguards against Undue Distortions of Competition, 
OJ C 10, 15 January 2009;  Communication from the Commission on the Treatment of Impaired Assets in the 
Community Banking Sector, OJ 72, 26 March 2009.  See also Communication from the Commission on the return to viability and the assessment of restructuring meas ures in the financial sector in the current crisis under 
the State aid rules, OJ C 195/9, 19 August 2009.   
91 In Asia, for example, four economies (Chinese  Taipei;  Hong Kong, China;  Malaysia;  and 
Singapore) introduced unlimited guarantees of all deposits on a temporary basis.  That a trade rationale has 
influenced some of these decisions was made apparent in Singapore's statement, in which both the Ministry of 
Finance and the Monetary Authority of Singapore stated that "the announcement by a few jurisdictions in the 
region of Government guarantees for bank deposits has set off a dynamic that puts pressure on other 
jurisdictions to respond or else risk disadvantaging and potentially weakening their own financial institutions and financial sectors.  This is why although Singapore’s  banking system continues to be sound and resilient, the 
Government has decided to take precautionary action to avoid an erosion of banks’ deposit base and ensure a 
level international playing field for banks in Singapore. "   Indonesia and the Philippines also increased their 
protection, within limits.  Australia's and New Zeala nd's unlimited deposit guaran tees (for three years, 
respectively) have been motivated by similar considera tions.  As expressed by Kevin Rudd, Australian Prime 
Minister, in a press conference "I don't want a first-class Australian bank discriminated against because some other foreign bank, which has a bad balance sheet, is being propped up by a guarantee by a foreign 
government." In Europe, "level-playing-field" considerations have prompted common action regarding deposit 
guarantees.  At a meeting on 7 October 2008, EU finance ministers decided to raise minimum bank deposit guarantees across all 27 Member States and to take coor dinated action to save financial institutions.  Following 
that meeting, on 15 October 2008, the European Commission put forward a revision of EU rules on deposit 
guarantee schemes, making it mandatory for Members States to increase the coverage le vel to at least 50,000 
euros and within a further year to at  least 100,000 euros.  In its opinion of 18 November 2008, the European 
Central Bank emphasized "that any increase in the coverage exceeding the latter of the above mentioned 
amounts should be preceded by close coordination at the EU level, as substantial differences between national measures may have a counter-productive effect and create distortions in the si ngle market."  See Report by the 
WTO DG, op. cit.   S/C/W/312 
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  crisis-related public sector interventions.  This has been recently stressed by the Bank for International 
Settlement ( BIS),  the IMF, and the FSB.92  A persuasive case can be made in favour of countries' 
coordination of exit strategies, particularly wher e there is potential for financial and regulatory 
arbitrage across jurisdictions.  This may be particul arly relevant in the case of government bank debt 
guarantees or even deposit protection schemes.  As recently put by the IMF (2009 a), "a potential for 
cross-border arbitrage is particularly relevant when  the removal of guarantees on bank liabilities is not 
coordinated across countries.  Specifically, in cases of countries whose liability guarantee applies to 
all banks operating within the jurisdiction, includi ng subsidiaries, banks can choose the location in 
which they issue debt through their subsidiari es in different jurisdictions.  Spreads between 
guaranteed and non-guaranteed debt  in various jurisdictions can be monitored so that such 
opportunities can be countered or anticipated."93  On the other hand, cross-border coordination might 
be less crucial for measures dealing with banks’ impaired assets, depending on the assets.  Since already-purchased assets that are held on the governme nt’s balance sheet are unlikely to have a major 
distorting impact on market  mechanisms, the gove rnment can afford some latitude in completing 
their unwinding. 
D. 
NEW RULES OF THE GAME AND THEIR POTENTIAL EFFECTS ON TRADE IN FINANCIAL SERVICES  
123. The extent and depth of the fi nancial crisis have prompted the reassessment of financial 
services regulation across the world, becoming a central topic for academics, regulators, and policy-makers.
94  The crisis has also brought about modifications in the governance mechanisms of global 
finance, which are now more inclusive and reflect  both the growing role of emerging economies not 
so much as global players but as regional players in  financial markets, and the close linkages between 
developed and emerging markets that were evidenced by the speed with which financial stress spread 
from central to more peripheral markets.95 
124. The purpose of this section is to review some  of the regulatory initiatives put forward in 
different countries and fora that are likely to have  significant and durable implications for the supply 
of financial services.96  
                                                      
92 See Bank for International Settlements (2009 a);  International Monetary Fund (2009 a);  and 
Financial Stability Board (2009 b).   
93 Although in a crisis bank debt  guarantees help preserve financ ial stability by supporting funding 
liquidity, they are highly dist ortionary, since the government assumes the credit risk in place of the debt-issuing 
entity, thereby reducing the market incentive to monitor credit risk.  As an indicator of the degree of market distortion created by the public sector’s assumption of  private sector credit risk, the IMF calculated the 
difference in the risk premium between government-guaranteed and non-guaranteed debt issued for a sample of 
three major banks.  In the second qu arter of 2009, the average risk prem ium for government-guaranteed paper 
was 350 basis points lower than for non-guaranteed paper for the banks in the IMF's sample.  See IMF (2009;  
chapter 3, footnote 25.   
94 The urgency of strengthening the regulation and supervision of financial-market institutions has been 
highlighted by the G20 since its meeting in November 2008.  Over the last few months, a large number of 
academic papers, official reports an d white papers have been publishe d in the US and in Europe, and 
international organisations have also contributed. 
95 As a reaction to calls for more inclusive global fi nancial regulatory initiatives in the current context, 
in March 2009 both the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Forum 
(FSF) expanded their respective memb erships.  The BCBS decided to add as new members Australia, Brazil, 
China, India, Korea, Mexi co and Russia.  The FSF changed its name  to Financial Stability Board (FSB) and 
broadened its membership to include the G20 countries that were not in the FSF (Argentina, Brazil, China, 
India, Indonesia, Korea, Mexico, Russia, Saudi Arabia, South Africa and Turkey), as well as Spain and the European Commission. 
96 On progress made to date on improving financia l regulation, see Financial Stability Board (2009 a).  S/C/W/312 
S/FIN/W/73 Page 34 
 
 
  125. The agenda starts with capital requirements, whose pro-cyclicality and insufficient levels 
have been widely viewed as having considerably deepened the financial crisis.  A consensus has 
emerged – and it is being translated into re gulatory action by International Standard Setting 
Organizations – that the quality and quantity of capit al in the system as a whole needs to be increased, 
so that banks holding the minimum required capital w ill be clearly viable in a crisis and confidence 
will be maintained.  This will lead to in a subs tantial increase in capital requirements over time.  
Capital requirements will also be implemented for ri sks in banks' trading book activities, with average 
requirements for the largest banks' trading books at least doubling by end-2010.  Increased emphasis 
will be put on Tier 1 capital, whose cu rrent definition is considered too lax.
97  With a view to avoiding 
highly leveraged institutions, a leve rage ratio will also be introduced as a supplement to the Basel II 
risk-based framework.   
126. As the basic minimum requirement applied for the operation of financial institutions, this will 
necessarily impact the financial business, as capital bu ild-ups are costly and ma y have – depending on 
their level – effects on interest rates.  Minimu m capital requirements will not only be raised, but 
applied in a countercyclical manner, so that fina ncial institutions will be obliged to build capital 
buffers above minimum requirements during goo d times that can be drawn down during more 
difficult periods.  While new approaches to capital adequacy will certainly be implemented in a non-
discriminatory manner, and not uniquely to foreign bank branches, it can be expected that regulators 
and supervisors carry their emphasis on a more h eavily capitalized financial system into their 
assessment of the adequacy of capital in the "whole fo reign bank" on a continuing basis.  In applying 
these standards, and taking into account the changes in supervisory philosophy that seem to be under 
way (see below), it can be expected that regulator s and supervisors will use more stringent capital 
tests.   
127. Bank liquidity requirements have also turned out to be a necessary prerequisite for financial 
stability.98  The drying up of liquidity at the level of i ndividual financial institutions, and ultimately 
the global system caused the seizing up of credit and financial flows.  The proposals put forward so 
far envisage significant increases in the amount and qualit y of liquid resources that banks will have to 
maintain, on a continuous basis, well above the amount they held in the past.  Stress testing will also be carried out more frequently, and in a more  extensive and rigorous manner than financial 
institutions may formerly have been used to.   
128. The scope of application of these standards, wh ether applied at group and/or entity level and 
to foreign bank branches, will be crucial in shaping future locational and trade patterns in the sector.  
A renewed focus on host-country supervision may imply the imposition of these requirements on a 
stand alone basis for each firm established in the host market, including foreign bank branches.
99 
129. The scope of financial regula tion and supervision is widely  regarded as having been 
inadequate.  There will certainly be an expansion in  the "perimeter of regulation" in the years to 
                                                      
97 As explained by The Economist, "many of the equity-like instruments allowed were really debt.  In 
effect, the fine print allowed banks' common equity, or "core" Tier 1, the purest and most flexible form of 
capital, to be as little as 2 per cent of risk-adjusted assets .  In hindsight, says one regulator, this was 'very, very 
low...unacceptably low'."  
98 As indicated in the proposed UK FSA rule on liquidity, "[a] firm must at all times maintain liquidity 
resources which are adequate, both as to amount and quality, to ensure that there is no  significant risk that its 
liabilities cannot be met as they fall due.  Such liquidity resources should be sufficient to withstand a range of 
severe stress events which could impair its ability to meet its liabilities as they fall due".   
99 The Basel Committee on Banking Supervision leaves this option open.  This application to all 
institutions on a stand-alone basis is, for example, the approach favoured by the UK , which has elicited criticism 
from industry.    S/C/W/312 
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  come.100  The objective is to ensure that all systemic ally important activities are subject to appropriate 
regulation and oversight.  This concerns not on ly institutions that were unregulated and non-
transparent, such as those cons tituting the so-called "shadow banking system" but, more importantly, 
the most regulated of all financial institutions  – banks – which could escape capital regulation by 
using off-balance sheet special investment vehicles (SIVs).101   
130. Credit rating agencies, which used to operate in  a largely unregulated environment, will also 
be subject to stronger regulation and oversight.  Ne w legislation creating oversight regimes has been 
approved in Japan and the European Union;  and in the US, amendments to existing regimes have 
been proposed or already made.   
131. While supervisory approaches differ significantly  across countries, there had been a general 
shift in focus during the years preceding the crisis, at least in most industrialized countries. Rather 
than on direct intervention, emphasis had been put  on banks' policies and practices, on the adequacy 
of their internal systems and controls, on the co mpetence of their senior management and boards of 
directors and, with the advent of Basel II, on th eir internal models for the calculation of capital 
requirements for market, credit, and operational risks.102  Under this approach, customer protection 
was not achieved mainly via product regulation or direct intervention in markets, but by ensuring that wholesale markets were transparent and worked smoothly.  Additionall y, this supervisory approach 
relied on the supervision of indivi dual institutions rather than th e whole system;  and a balance 
between conduct of business regulati on and prudential regulation.  With  the benefit of hindsight, this 
balance now appears biased towards the former, particul arly in banking.  Of course, this shift reflected 
prevailing perceptions about the effectiveness of diffe rent supervisory approach es,  changes in and the 
increased complexity of the activities undertaken by banks, and the growth of the financial sector.   
                                                     
 
100 This expression has been used by the Financial Stability Board itself.  See Financial Stability Board 
(2009a).  
101 The key point here is that such SIVs served to buy asset-backed securities mostly through short-term 
asset-backed commercial papers.  However, the corresponding risk was not transferred since banks extended 
guarantees to their SIVs, or even held asset-backed secu rities (ABS) while transferring their loans to SIVs in 
order to reduce in-balance-sheet risks.  When in the wake of the crisis, short-run funding dried up, ABSs (now called ‘toxic assets’) were transferred back to banks’ balance sheets (where capital requirements apply), leading 
to a sudden undercapitalisation of the banking sector and to the subsequent disruptions in financial markets.  
This clearly suggests that failure to regulate the ‘shadow’ banking sector is one of the root causes of the crisis.  
The "shadow banking sector" can be broadly defined as financial intermediation by institutions, markets, and 
products outside of the banking sector and traditional securities markets.  This definition covers non-bank 
financial institutions (NBFIs), such as  hedge funds and SIVs, financial product s such as asset backed securities, 
and markets such as repo markets.   
102 Basel II adopts a "three-pillar" approach:  1) minimu m capital requirements;  2) supervisory review;  
and 3) market discipline.  Under "pillar 1" (minimum capital requirements), banks are required to have 
sufficient capital to cover credit, market and operational risk, the latter being a new element of regulatory ratios, 
as Basel I had no explicit capital charge for operational risk.  One fundamental innovation under Basel II is the use of credit ratings to provide a more refined measure of  a bank’s credit risk exposure.  Basel II has foreseen 
two systems to calculate banks' minimum capital requirements for credit risk, depending on the degree of 
sophistication of the bank:  the Standardised system, and the Internal Ratings Based (IRB) system .  The 
Standardised Approach is the simplest of all, and represents a limited departure from Basel I.  In contrast to the 
Standardised approach, the IRB approa ch represent a fundamental shift in the philosophy of capital regulation, 
moving towards a regulatory capital system based on the bank’s own internal assessments of its risks.  The IRB approach can be divided  into "foundation" and "advanced".  The "foundation" approach requires the bank to 
determine only each loan’s probability of default, and the supervisor would provide th e other risk inputs; while 
under the "advanced" approach, the bank determines all the risk inputs, using models and procedures validated by the supervisor.  Industrialized countries in general have opted for the advanced IRB system, albeit with some 
differences in the scope of application (e.g. all banks in the EU, only the internationally active ones in the US).  S/C/W/312 
S/FIN/W/73 Page 36 
 
 
  132. The new regulatory and supervisory approach that  seems to be emerging is likely to be more 
intrusive and more systemic, including not only micro- but also macro-prudential oversight.  
Moreover, it will require supervisors to exerci se more judgement across a wide range of areas, 
including capital, liquidity, and stress testing.   
133. As indicated, there may be a renewed focus on host-country regulati on and supervision in 
many areas.  This is already reflected in the stan ce taken by some supervisors over the last months, 
which have been seeking greater assurances a bout the financial soundness of branches' and 
subsidiaries' parent institutions;  the willingness of the parent bank to support its branches and 
subsidiaries in the host country;  the adequacy of  liquidity being held locally by the branch or 
subsidiary;  the standards of regulation and supervis ion in the home country;  and, in some cases, the 
adequacy of deposit protection for the depositors of the local branch.  Over time, foreign banks (particularly when working through branches) may be increasingly confronted with requirements to 
ring-fence liquidity, to provide guarantees by the parent  bank for its branches, to restrict the range of 
their activities, or to operate through subsidiaries ra ther than branches (particularly if foreign bank 
branches become systemically important in the host c ountry market or if there is a concentration of 
assets in the hands of banks originating in the same home country).
103 
134. Another issue on the agenda relates to the cha llenges posed by the so-called "too-big-to-fail" 
(TBTF) financial institutions, which have grow n in the 2000s through a process of intense 
consolidation, not only within borders but across countries.104  The financial crisis has contributed to 
further consolidation, by spurring a series of mergers and acquisitions that have led to an even larger 
number of systemically important institutions w hose activities are spread over numerous countries.  
The problem raised by the TBTF phenomenon is, on th e one hand, one of size – the larger the bank 
that fails, the bigger the potential impact – and, on the other hand, one of interconnectedness – the 
more banks are linked by counterpa rty relationships and inter-bank funding, the greater the danger 
that the failure of one will pull down the system.105   
                                                      
103 So-called local incorporation re quirements are not new though.  The US and Canada authorise 
foreign branches to conduct wholesal e business only. Banks wishing to accept retail deposits (i.e. deposits under 
a certain threshold established by the regulatory auth ority) must incorporate locally.  Since April 2001, New 
Zealand has required some Australian banks, which have become systemically important in New Zealand, to 
incorporate locally.  Singapore has also applied local incorporation requirements for systemically important 
banks.  
104 "Too-big-to-fail" (TBTF) has been defined as an institution that is too big to be allowed to fail in a 
fashion which includes options other than whole bank rescue through capital injections and guarantees, and in a fashion which imposes losses on people other than the equity providers (e.g.  debt capital providers).  According 
to Turner (2009), th e "TBTF" status creates three categories of conc ern.  First, there is moral hazard arising if 
uninsured creditors believe ex-ante that a bank is "too-big -to-fail", and therefore provide funds at artificially low 
rates, with no incentive to impose market discipline.  Second, rescuing these institutions may imply a high fiscal 
cost, and may be perceived as unfair if the risk of failu re has been preceded by very large gains.  Third, some 
banks may be too big for the home country authorities to rescue – a danger which materialized in the case of 
Iceland, but which could theoretically be a challenge in  much larger economies, wherever total bank liabilities 
are very large as a per cent of GDP. 
105 One of the startling features of the years leading up to the crisis was the explosion of trading in 
securities and derivatives, which resulted in a dramatic growth in the balance sheets of the banking system.  
Those of banks and investment banks grew far more rapidly than could be explained by increasing debt in the 
real economy, instead driven by a huge  proliferation of contract claims within the financial system, between 
different banks, investment banks and even insurance companies.  For example, AIG was considered by US 
authorities to be too big and too interconnected to fail, since the company had sold billions in credit-default 
swaps to several major banks, including US$20 billio n to Goldman Sachs, what  amounted to unregulated 
insurance on risky subprime-mortgage in vestments.  As the real-estate mark et collapsed, Standard & Poor’s was 
preparing to slash AIG’s credit rating, meaning AIG woul d be swamped with collateral calls it could not pay.   S/C/W/312 
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  135. Policies to deal with this problem range fro m reducing interconnectedness in counterparty 
relationships (something which at this stage seems  uncontroversial), increasing capital and liquidity 
requirements well above those enforced on smalle r financial institutions (which also seems 
uncontroversial at this stage), breaking up financia l institutions through an titrust mechanisms, or a 
variant of the "Glass-Steagal" regime that prevailed in the US until the late 1990s.   
136. Profound changes have been recentl y announced by the United States.106  T h e  U S  p l a n  
consists of two parts, the first dealing with restrict ions on the scope of banks' activities.  Banks that 
accept deposits will no longer be allo wed to own, sponsor, or invest in hedge funds or private equity 
funds.  Nor would they be allowed to engage in pr oprietary trading operations for their own profit, 
unrelated to serving their customers (though they could presumably continue to offer investment 
banking for clients, such as underwriting securiti es, and advising on mergers).  The second part 
focuses on size, and aims at preventing further conso lidation of the US financial system.  In addition 
to the 10 per cent cap on national market share of depo sits that has long been in place, large financial 
institutions operating in the US would be subject to a cap on wider forms of funding, most notably 
wholesale funding.   
137. Any of these initiatives will affect the supply of financial services in national markets and 
beyond.  The pace and direction of change are very di fficult to predict at present.  For example, it is 
not yet clear whether counterparty clearing servi ces will be channelled through a single or multiple 
central counterparty clearing providers (CCPs).  The potential for trade in this subsector may diminish 
if, for example, regulators mandate a single CCP or put limits on the numbers of CCPs that can 
provide these services in their jurisdictions.  Add itionally, the new requirements may reduce much of 
the competitive advantage of TBTF institutions.  For one, if an institution ceases to be considered as 
TBTF, and both an institution and the public perceive  that, if there is a problem, the institution might 
be led to fail, then its products will have to be priced differently reflecting the reduced incidence of 
the implicit subsidy granted by the government guara ntee.  Additionally, higher capital requirements 
may potentially affect the competitive position of th ese institutions, which used to be subject to 
relatively lighter capital requirements under Basel II.107 
138. These regulatory initiatives seem genuinely motivat ed by the need to avoid systemic risk, 
either because of excessive risk-taking by financia l institutions or cross-border contagion.  Such 
initiatives, particularly those of a clear regulatory nature, would not be hampered by the GATS.  But 
even if any specific measure could be considered as inconsistent with an obligation or commitment in 
the GATS, Members could still have recourse to th e prudential carve-out, which, as explained in 
previous sections, recognizes the right of Member s to take any measure for prudential reasons 
notwithstanding any other provisions of the Agreement.  
                                                                                                                                                                     
However, it is worth noting that problems of interconne ctedness can arise not only in really big financial 
institutions, but also among medium or small-size banks ha ving similar business models so that the failure of 
one inevitably creates concerns about the sustainability of others, which in turn may prompt calls for 
government bailouts.  For example, Northern Rock’s failure posed immediate questions about the sustainability 
of Bradford and Bingley.   
106 President Obama himself made the announcement on 21 January 2010.  See "Remarks by the 
President on Financial Reform", available at the White House website.   
107 In the words of Lord Turner (chairman of the UK FSA):  "But it’s worth noting that until this 
crisis,...there was a fairly explicit regulatory philosophy, embedded in the Basel II capital adequacy regime, that 
large-scale meant diversification and sophistication, and that both could justify lighter capital requirements.  
Advanced Internal Ratings Based (IRB) approaches, app lied by the larger banks, can result in estimates of 
required capital up to a third lower than under standalone standardised approaches, and in the past larger banks 
have tended if anything to be more lightly capitalised than small."  See Turner (2009).  S/C/W/312 
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  V. COVERAGE, LEVEL AND TYPE OF CURRENT COMMITMENTS IN FINANCIAL 
SERVICES 
139. WTO Members have made more commitments in financial services than in any other sector 
except tourism. This may be attributed to the inte rplay of several factors:  (i) the higher negotiating 
momentum in this as compared to many other sec tors as reflected in the extended negotiations on 
financial services held in 1995 and 1997, which a llowed for significant improvements in the number 
of commitments;  (ii) the accession of some 25 new Members to the WTO after 1995, who in all cases undertook extensive commitments on financial services (Box 3);  (iii) governments' self-interest in 
using commitments, and the associated gains in stability and transparency, to promote foreign 
participation in this sector for obvious economic reasons.
108  As of today, 110 schedules (counting the 
EU-15 as one) contain commitments in at least one financial services subsector.   
140. The coverage of subsectors is variable, as can be seen in Table 15.  Interestingly, almost all 
Members with commitments in banking and other financial services covered the "core" services of commercial banks – deposit taking and lending (98 and 97 schedules, respectively).  Fewer Members 
made commitments in insurance services, among whic h, as could be expected, given its liberalized 
and highly international nature, reinsurance stands  out (90 schedules).  Far fewer Members, some 70 
on average, made commitments in capital market-re lated services such as trading, underwriting of 
securities, asset management, settlement and clear ing services, and advisory and other auxiliary 
financial services.   
141. Of the 17 subsectors listed in the Annex on Financial Services
109, Members on average 
committed about 13 (12 if recently acceded Members ar e not taken into account).  Coverage is more 
comprehensive among developed coun tries, who made commitments in all 17 sub-sectors, compared 
to transition economies, developing, and least-dev eloped countries, who made commitments in 15.8, 
11.3, and 11.7 subsectors respectively.  
142. Tables 16 and 17 present the levels of market access commitments for insurance and banking 
and other financial services for all modes of supp ly, based on a distinction between full (i.e. no 
limitations), partial (i.e. some li mitation) and unbound.  The percentage  shares of the three levels are 
calculated on the basis of the sub-sector under co nsideration.  For example, among the Members 
making commitments regarding non-life insura nce services under mode, 12 per cent made full 
commitments, 58 per cent introduced limitations , and the remaining 30 per cent left the mode 
unbound.110   
143. As could be expected, across all subsectors th e proportion of full commitments is higher in 
general for trade through mode 2 and lower for mode  4.  The percentage share of full commitments 
for trade through mode 1 is generally low – roughly under 27 per cent.  However, there are variations 
depending on the subsector.  While the share of fu ll commitments in mode 1 is extremely low for 
services such as life and non-life insurance, which have historically required a commercial presence 
or have been subject to the requirement of estab lishing a presence in the host country), they are much 
                                                      
108 See Marchetti (2009 b) for an overview of results  achieved in the 1995 and 1997 negotiations.   
109 Considering life and non-life insurance services as two separate subsectors, and trading in all sorts 
of securities and financial assets as one subsector. 
110 A focus on market access for this type of genera l analysis is warranted not only because of the 
importance of market access limitations for foreign service suppliers,  but al so because, as per Article XX:2 of 
the GATS, any measures  inconsiste nt with both Article XVI (market access) and Article XVII (national 
treatment) are scheduled in the market access column.  As a consequence of this scheduling convention, the 
entry “none” in the national treatment column may not necessarily be taken to mean a full commitment to national treatment in cases where market access limitations  also constitute limitations on national treatment.  
This makes it more difficult to assess the degree of commitment to national treatment.  S/C/W/312 
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  higher for sectors such as provision and transfer of financial information (which has been increasingly 
concentrated in specific locations, benefiting from outsourcing), and MAT insurance services and 
reinsurance services.111  The latter services are commonly supplied on a cross-border basis from the 
world’s major financial centres, and countries us ually place few restrictions on their supply.   
144. Stronger commitments have been made in genera l under mode 3 than under mode 1.  This is 
due on the one hand, to supervisory concerns on the pa rt of financial regulators that have historically 
preferred supply through a local establishment th an on a cross-border basis for most financial 
services, particularly for reasons of consumer prot ection (i.e. direct insurance, and retail commercial 
banking) and, on the other hand, to  concerns regarding the potential legal effect of GATS disciplines 
on the regulation of capital flows.  Those concerns  have motivated higher proportions of "unbound" in 
mode 1 than in mode 3.  Indeed, as can be gauged by  Table 16,the combined percentage share of full 
and partial commitments in mode 1 is much lower than in mode 3.  The observed distribution of 
commitments therefore generally confirms the no tion that governments have preferred commercial 
presence to cross-border supply, but the differences are not very great.   
145. The high proportion of partial commitments in mode 3 is not surprising taking into account 
that the financial sector has been tr aditionally subject to heavy regulation.112 Many of the market 
access limitations scheduled seem to be of a non-discr iminatory nature (i.e. limitations on the type of 
legal entity that must be established to supply sp ecific financial services, or restrictions on the 
concentration of bank ownership and the ability of non-financial co rporations to purchase substantial 
stakes in financial entities, particularly banks, wi thout regulatory approval.   Another interesting 
feature of commitments in financial services is that th ey tend to be particularly "wordy".  As a result, 
a good number of the limitations found cannot be eas ily allocated to one of the six categories of 
market access limitations contained in Article XVI:2 of the GATS.  Some of them seem to be clearly 
of a prudential nature and, theref ore, would not need to be scheduled as per the Scheduling Guidelines 
(e.g.  minimum capital requirements), while others seem to relate to non-discriminatory authorization 
or licensing requirements.113  Again, if these requirements are maintained for domestic regulatory 
purposes, they do not need to be inscribed in sch edules either.  Otherwise, if they serve as an 
implementation mechanism for quantitative restrictions, it is the latter that ought to be inscribed.   
146. In general, among the six types of measures lim iting market access as listed in Article XVI:2 
of the GATS, restrictions on the type of legal entity (e.g. specific legal types, or restrictions on direct branching) predominate.  These are followed by limitations on the participa tion of foreign capital, 
limitations on the number of suppliers, and limitati ons on the value of transactions or assets (such as 
limitations on the share of banking assets allowed to be held by foreign banks).  Limitations on the 
number of service operations and on the total quan tity of service output (such as numerical limits on 
the number of ATMs allowed) are relatively few.   The frequency of the types of measures do not 
differ very much for the major sub-sectors of fi nancial services (e.g. direct insurance and deposit-
taking and lending). 
147. It should be kept in mind, however, that , except for recently acceded Members, current 
commitments do not reflect the actual level of liberalization in most WTO Members.  Recent research 
                                                     
 
111 MAT stands for marine, aviation, and transport insurance. 
112 For a discussion about trade policy in financial services, see Marchetti (2009 a). 
113 For information on the main barriers identified by Members in the current negotiations, see 
"Financial Services", Informal No te by the Secretariat, (JOB(05)/190, dated 19 September 2005).  S/C/W/312 
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  comparing WTO specific commitments in banking services with current regulatory practice in the 
sector shows that many Members are more open in r eality than they have committed to at the WTO.
114 
148. Additional Commitments have been made only by  a small number of Members:  Albania, 
Brazil, China, Chinese Taipei, the Europ ean Union, Japan, and the United States.115  Finally, sector-
specific MFN exemptions in financial services have  been taken by 27 Members:  Austria, Brunei 
Darussalam, Canada, Colombia, Côte d'Ivoire, El Salvador, the European Union, Honduras, Hungary, 
Indonesia, Israel, Liechtenstein, Mauritius, Nicar agua, Pakistan, Peru, Philippines, Senegal, 
Singapore, Slovak Republic, South Africa, Swaziland , Switzerland, Turkey, United Arab Emirates, 
United States, and the Bolivarian Republic of Venezuela.   
 
  
_______________ 
 
                                                     
 
114 See Barth et. al. (2009a)).  The paper compares inform ation on 123 WTO Members' commitments 
on banking services (counting each EC member state individually) with World Bank data on regulatory 
practices in those countries ("Reported Practices" data).  The latter information was compiled through 
questionnaires replied by each country's regulatory agen cy, and reflects therefore "pr actice" instead of specific 
pieces of legislation or regulation.  For an overview of methods used in ot her papers to quantify the degree of 
restrictiveness of WTO specific commitmen ts on banking and other financial services, see Barth et al. (2009b)).  
115 For a full analysis of additional commitments in financial services, see "Additional Commitments 
under Article XVIII of the GATS", background note by the Secretariat, WTO document S/CSC/W/34 
(paragraphs 40 to 80) and Add.1.  S/C/W/312 
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ANNEX 
 
The Classification of Financial Services  
  
1. The GATS Annex on Financial Services defines financial services as "any service of a 
financial nature offered by a financial service s upplier of a Member", including all insurance and 
insurance-related services, and all banking and other financial services (excluding insurance).  
Financial services is the only sector in the GA TS for which two internationally recognised 
classifications exist:  one is contained in the Anne x on Financial Services and one is included in the 
Services Sectoral Classification List, document MTN.GNS/W/120, dated 10 July 1991 (hereinafter "the W/120").
1  Both classifications are deemed to cove r the whole range of financial services under 
the GATS coverage.  However, although similar in  their description of financial services, both 
classifications present some differences.   
2. The main differences in the structure and listing of financial services between the two 
classifications are the following: 
(a) Each sector contained in the W/120 is accompanied by a Provisional Central Product 
Classification (CPC) number, whose purpose is to provide a more detailed definition of each-subsector.   
(b) While the classification in the Annex di stinguishes between life and non-life 
insurance, the W/120 distinguishes between lif e, accident and health insurance on the 
one hand, and non-life insurance on the other.   
(c) While the W/120 classifies together "services auxiliary to insurance" and "insurance 
intermediation services" (e.g.  broking and agency), the classification in the Annex 
distinguishes between intermediation services, such as brokerage and agency, on the 
one hand, and  services auxiliary to insura nce, on the other.  The Annex provides 
examples of the latter, such as  consulta ncy, actuarial, risk assessment and claim 
settlement services.
2 
(d) The Annex classification provides a non-exha ustive list of so-called payment and 
money transmission services, i.e., credit car d, charge and debit cards, travellers 
cheques and bankers drafts services. 
(e) While subsector (k) in the W/120 refers to "[a]dvisory and other auxiliary financial 
services", the equivalent subsector in the A nnex adds a reference to "intermediation", 
which does not appear to be to tally clear in this context.3   
3. The correspondence between the literal headi ngs in the W/120 and the Provisional CPC 
numbers is not entirely straightforward.  The main problems include: 
                                                      
1 See Guidelines for the Scheduling of Specific Commitments under the General Agreement on Trade 
in Services (GATS), document S/L/92, dated 28 March 2001, paragraph 23.   
2 The same distinction could in principle be achieved by opening up CPC number 8140 at 5-digit level.   
3 As a matter of fact, the illustrative list of services mentioned in this subsector relates more to advice 
and auxiliary services than to intermediation services per se .   S/C/W/312 
S/FIN/W/73 Page 42 
 
 
  (a) While accident and health insurance are incl uded in "life" insurance instead of "non 
life" insurance as in the Provisional CPC, the corresponding CPC code given in the W/120 for life, accident and health insuran ce services (8121) does not cover accident 
and health insurance (81291 under non-life in surance in the CPC), which appears to 
contradict the heading for this item. 
(b) While reinsurance and retrocession services ha ve been separated out in the W/120, 
the Provisional CPC code used (81299* under non-life insurance in the Provisional CPC) gives the impression that reinsurance and retrocession are only part of non-life insurance services, while in f act reinsurers provide services to both life and non-life 
insurers.  It would have probably been be tter to use the Provisional CPC code 812*, 
which already includes reinsurance.   
(c) Both classifications set "pension fund mana gement services" apart from life insurance 
services and include those services as part of "asset management services" (under "Banking and other Financial Services").  However, the corresponding Provisional 
CPC code adopted in the W/120 (81212) does not take into account that pension fund 
management services (which in the Provisional CPC are classified together with life insurance services) are separated out and put under asset management services.  In other words, the Provisional CPC code 8121 already covers both life and pension 
fund management services.
4  
4. While a majority of Members (absent 64 per cent) have adopted either the classification in the 
Annex or in the W/120 in whole or in part, the r est has opted for their ow n classification in either 
insurance or banking and other financial services.  Some of the latter have complemented their own 
classifications with the use of CPC numbers.  It is not uncommon to find Members using one classification for one of the subsectors (e.g. insuran ce), and another for other subsectors (e.g.  banking 
and other financial services).  In some cases, only a partial use of CPC numbers has been made, even 
within the same subsector.   
5. The fact that only about half of the schedules contains CPC numbers (about 43 per cent for 
banking and other financial services and 51 per cent  for insurance) may be an indication of the 
difficulties encountered by Members in identifyi ng the different subsectors with CPC codes.
5  It is 
worth noting in that regard that a good number of Members have expressed a preference for the 
classification in the Annex on Financial Services, which in their view provides a flexible and 
comprehensive framework for scheduling commitm ents, and which is more disaggregated and 
therefore more appropriate for the purposes of sche duling than the provisional CPC codes used in the 
W/120 classification.  According to a Member, the br oad definitions in the Annex also cover services 
the purchase of which is compulsory (e .g.  certain types of insurance). 
6. A few Members raised classification issues towards the beginning of the negotiations which 
have not been thoroughly examined thus far.  A lthough these Members consider that the classification 
of financial services (particularly the one contained in the Annex) is comprehensive and flexible in 
general, they express doubts whether certain services ar e adequately captured.  Services mentioned in 
this context include alternative (electronic) trading systems, venture capital;  electronic bill presentment;  and securitisation.  How to address th ese services in the classification remains open.  
                                                     
 
4 The provisional CPC group 812 is entitled "Insuran ce (including reinsurance) and pension fund 
services, except compulsory social secu rity services", and is further subdivided in classes 8121 (life insurance 
and pension fund services) and 8129 (non-life insurance services).   
5 The analysis that follows is based on "Financial  Services", Informal Note by the Secretariat 
(JOB(05)/190, dated 19 September 2005).   S/C/W/312 
 S/FIN/W/73 
 Page 43 
 
 
  7. New definitions of marine and energy insura nce have been proposed for the purposes of 
scheduling commitments.  In the case of marine insurance, it has been proposed to broaden the 
definition used in the Understanding on Commitme nts in Financial Services in order to clearly 
identify (non-life) insurance service s with regard to (i) transportation of passengers (scheduled or non-
scheduled), and (ii) larger fishing vessels.  In  the case of energy insu rance, the new definition 
proposed addresses the insurance of the commercial up stream – or the so-called "offshore" – segment 
of the market;  i.e. all insurance related to:  (a) exploration;  (b) development;  (c) production 
activities;  and (d) properties in the pe troleum sector, both onshore and offshore.6 
 
_______________ 
 
 
                                                      
6 According to this proposal, the insurance products would normally cover a petroleum company's 
assets and liabilities during the exploration and operatio n phase, including vessels operating in these activities.  
This consists of insurance relating to  drilling and producing oil and gas;  transportation to terminals by pipelines 
or vessels;  gathering, separation, storage, terminals and other processes prior to arrival at refinery;  marine liabilities and pollution liability;  business interruptions arising form physical damage to installations, etc.;  
terrorist coverage;  and other associated properties or pl ants relating to the upstream activities, including mobile 
offshore units, supply boats, safety vessels and related vessels and units.  Insurance related to refineries (which is considered down-stream business) could also be in cluded.  However, liability insurance in relation to 
occupational injury or illness is not included. S/C/W/312 
S/FIN/W/73 Page 44 
 
 
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_______________ 
 
 S/C/W/312 
S/FIN/W/73 Page 48 
 
 
  APPENDIX  
  
Table 1:  Share of value added of the finan ce and insurance services sectors, 2000-2008  
(percent of GDP)  
 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Afghanistan  a ... ... 0.7 1.0 1.3 1.4 1.6 2.0 ... 
Albania 4.1 3.7 3.6 3.9 3.3 3.9 4.0 4.6 ... 
Algeria 2.0 2.4 2.3 2.1 ... ... ... ... ... 
Andorra 21.4 22.3 20.9 18.4  17.8 18.4 18.9 19.8 ... 
Anguilla 13.3 13.9 12.1 12 .5 12.7 11.6 10.5 ... ... 
Argentina 4.3 5.4 5.5 3.9 4.1 4.3 4.6 4.9 ... 
Armenia 2.0 2.1 1.7 1.6 1.8 1.9 2.3 2.4 3.0 
Aruba 7.0 7.1 6.6 6.7 6.7 6.8 6.7 ... ... 
Australia 7.1 7.5 7.4 7.6 7.7 7.8 8.0 7.8 ... 
Austria 5.6 5.5 5.5 5.2 5.2 5.5 5.4 5.4 ... 
Azerbaijan 1.0 1.3 1.1 1.3 1.5 1.5 1.4 1.6 1.8 
Bahamas 12.6 13.7 13.2 10 .7 10.9 11.2 11.1 ... ... 
Bahrain 21.6 18.9 17.8 21.4 24.4 24.1 23.1 23.0 20.6 
Bangladesh 1.6 1.6 1.6 1.6 1.6 1.7 1.7 1.7 1.7 
Belgium 6.0 5.6 6.1 5.8 6.1 5.9 5.7 5.6 ... 
Belize 7.2 7.4 8.4 9.6 9.5 9.4 8.9 ... ... 
Bhutan 3.9 4.0 3.4 3.6 4.1 5.1 5.6 5.1 ... 
Bolivia 6.0 5.5 5.2 4.3 3.6 4.0 4.0 4.3 4.5 
Bosnia and Herzegovina 3.6 3.4 3.7 3.7 3.7 4.2 4.1 4.4 ... 
Botswana 4.6 4.2 4.8 5.3 5.5 5.4 5.5 5.3 5.9 
Brazil 6.0 6.8 7.5 7.1 5.8 7.1 7.2 ... ... 
British Virgin Islands 6.3 4. 9 5.0 5.2 5.8 4.9 5.6 5.4 ... 
Brunei Darussalam  b 3.1 3.5 3.4 3.1 2.8 3.0 3.0 2.9 ... 
Bulgaria 3.0 3.2 3.5 3.9 4.3 5.5 5.6 7.0 ... 
Burkina Faso 1.3 1.5 1.3 1.3 1.5 1.5 1.6 1.6 1.8 
Cambodia 1.3 1.0 1.1 1.0 1.2 1.2 1.3 1.5 ... 
Cameroon 1.3 1.3 1.3 1.4 1.3 1.2 0.9 0.8 ... 
Canada 7.1 7.3 7.3 7.3 7.4 ... ... ... ... 
Cape Verde  c ... ... ... ... 4.5 4.1 4.6 ... ... 
Chad 1.1 0.9 ... ... ... ... ... ... ... 
China 4.1 4.0 3.8 3.7 3.4 3.4 4.0 4.4 ... 
Colombia 4.1 4.1 4.3 4.3 4.4 4.5 4.1 4.4 ... 
Costa Rica 4.8 5.0 5.4 5.7 5.6 5.9 5.9 6.1 ... 
Côte d'Ivoire 4.0 ... ... ... ... ... ... ... ... 
Croatia 3.9 4.4 4.9 5.3 5.1 5.9 ... ... ... 
Cyprus 7.7 7.1 6.3 6.2 6.6 6.9 7.5 8.0 ... 
Czech Republic 2.8 3.2 3. 1 3.6 3.5 3. 0 3.1 3.7 ... 
Denmark 4.7 4.7 5.0 5.4 5.3 5.4 5.3 5.4 ... 
Dominica 11.3 11.6 11.3 11 .2 11.5 11.8 12.0 ... ... 
Dominican Republic 4.0 4.6 5.2 5.1 4.4 4.1 4.7 5.5 6.0 
Ecuador 2.0 2.2 2.3 2.2 2.2 2.6 2.7 2.6 ... 
Egypt 10.9 10.7 8.8 8.5 10.0 7.7 7.3 ... ... 
El Salvador 4.5 4.5 4.5 4.4 4.6 4.7 4.7 4.7 ... 
Estonia 4.1 3.8 4.2 3.8 3.9 3.7 3.8 4.1 ... 
Ethiopia 1.8 1.8 1.4 1.7 1.7 1.7 1.8 1.7 1.5 
EU (27) 4.9 4.8 5.1 5.4 5.5 5.6 5.5 5.5 5.4 
Fiji  d 5.6 7.1 6.8 5.6 5.7 5.4 7.8 8.3 ... 
Finland 4.3 3.6 3.4 2.2 2.6 2.3 2.6 2.9 ...  S/C/W/312 
 S/FIN/W/73 
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   2000 2001 2002 2003 2004 2005 2006 2007 2008 
France 5.1 4.5 4.8 4.9 4.9 4.9 4.9 4.7 4.6 
FYR Macedonia 3.6 3.7 3.6 2.8 3.2 3.3 3.6 3.9 ... 
Gambia 7.8 7.5 7.6 7.2 7.1 7.0 6.6 6.6 ... 
Georgia 1.6 1.5 1.5 1.6 1.4 2.2 2.4 2.5 2.4 
Germany 4.2 4.1 4.4 4.7 5.1 5.0 4.8 4.2 ... 
Greece 5.5 4.3 4. 2 4.5 4.6 4. 8 4.5 4.7 ... 
Grenada 8.7 9.2 9.4 10.0 10.1 8.8 8.8 9.1 ... 
Guatemala ... 2.7 2.8 2.7 2.8 2.8 2.9 ... ... 
Guinea 1.3 1.2 1.8 2.0 1.9 2.0 3.4 ... ... 
Guyana 3.9 3.7 3.6 3.6 3.6 3.9 4.0 4.4 ... 
Honduras 5.3 5.4 5.4 5.3 5.7 5.7 6.2 6.5 6.9 
Hong Kong, China 12.0 11.4 11 .6 12.4 12.3 12.8 15.9 ... ... 
Hungary 3.3 3.4 3.8 3.9 4.1 4.7 4.5 4.2 ... 
Iceland  e 5.4 6.0 6.1 7.3 8.2 9.2 10.0 ... ... 
India 5.4 5.9 6.3 6.3 5.8 5.4 5.6 5.5 ... 
Indonesia 4.6 4.6 4.5 4.5 4.2 4.0 3.7 3.6 ... 
Iran, Islamic Rep. of 1.6 1.5 1.8 2.4 3.3 3.6 4.4 5.0 ... 
Iraq 0.3 0.5 0.6 ... 0.6 0.7 0.7 0.8 ... 
Ireland 7.3 7.6 7.6 9.2 9.8 10.1 10.2 10.6 ... 
Italy 4.7 4.8 4.6 4.8 4.7 4.8 4.8 5.1 ... 
Jamaica 8.6 8.7 8.8 10.5 10.0 9.6 8.9 8.9 ... 
Japan 5.9 6.3 6.6 6.7 6.5 6.7 6.7 6.5 ... 
Jordan 3.7 3.9 4.9 5.0 5.2 6.9 6.9 ... ... 
Kazakhstan 3.3 3.6 3.7 3.3 3.1 3.4 4.8 6.1 ... 
Kenya 4.0 4.6 4.0 4.9 3.9 3.8 4.4 5.3 ... 
Kiribati 7.7 8.1 7.5 6.0 10.9 14.0 11.9 13.6 12.9 
Korea, Republic of 5.8 6.4 7.5 7.3 6.7 6.9 6.8 7.0 ... 
Kuwait 5.2 6.2 7.2 8.4 8. 6 10.5 10.7 12.2 ... 
Kyrgyz Republic 0.5 1.2 1.6 1.6 2.1 2.5 2.9 3.8 4.0 
Lao People's Dem. Rep. 0.8 0.8 0.4 0.4 0.3 0.4 1.5 1.7 ... 
Latvia 4.9 4.4 5.0 4.9 5.1 6.0 6.8 6.2 ... 
Lesotho 4.2 4.2 4.1 4.6 4.3 3.7 4.0 4.0 ... 
Libyan Arab Jamahiriya ... 2. 1 1.7 1.6 1.3 1.1 1.0 1.1 ... 
Lithuania 2.2 2.1 2.3 1.9 1.9 2.3 2.9 3.5 ... 
Luxembourg 25.0 21.2 20.7 23.2 22.9 25.4 28.8 27.2 ... 
Macao, China 11.5 11.1 10.5  9.7 8.0 9.5 10.2 9.3 ... 
Madagascar 1.2 1.0 0.9 0.9 1.0 1.1 1.1 1.1 ... 
Malawi ... ... 5.6 6.7 6.2 6.2 ... ... ... 
Malaysia 8.9 9.6 9.9 9.3 8.6 8.3 8.3 8.1 ... 
Mali 0.9 0.8 0.9 0.8 0.8 0.9 0.9 0.9 0.9 
Malta 5.9 6.1 5.4 4.9 4.1 4.9 5.0 4.4 ... 
Mauritania ... 2.2 ... ... ... 2.5 1.5 ... ... 
Mauritius 9.1 8.4 8.8 9.5 9.3 9.8 9.8 9.9 10.2 
Mexico 2.3 2.1 3.5 3.0 3.1 3.7 3.6 ... ... 
Moldova 5.9 5.0 4.8 5.2 5.4 5.3 5.8 7.1 7.4 (p) 
Mongolia 2.5 3.2 3.4 4.3 4.3 4.1 3.2 3.7 ... 
Montenegro 3.5 2.6 2.7 2.7 2.7 2.9 3.7 4.7 ... 
Morocco 5.8 5.6 5.5 5.3 5.2 5.7 5.8 6.7 ... 
Mozambique 4.0 3.7 3.7 3.6 3.8 4.8 4.5 4.6 ... 
Myanmar b, f 0.1 0.1 0.1 0.1 0.1 0.1 ... ... ... 
Namibia 3.9 3.8 3.9 4.9 4.3 4.3 4.4 4.4 ... 
Nepal 2.8 2.8 2.8 2.7 3.2 3.6 4.2 4.9 ... 
Netherlands 6.1 6.1 6.5 7.3 7.4 7.7 6.7 6.0 ... S/C/W/312 
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   2000 2001 2002 2003 2004 2005 2006 2007 2008 
Netherlands Antilles 15.5 15.1 16 .3 17.6 17.4 19.4 17.3 ... ... 
New Zealand  g 5.8 6.0 6.4 ... ... ... ... ... ... 
Nicaragua 3.8 3.6 4.0 4.3 5.0 4.7 4.9 5.7 6.0 
Niger 0.8 0.9 0.7 0.9 1.3 1.3 1.2 1.4 1.3 
Nigeria 1.0 1.2 1.1 1.0 0.9 0.9 1.6 1.7 1.5 
Norway 3.0 3.0 3.1 4.0 4.3 3.9 3.4 3.6 3.6 
Oman 3.9 4.3 4.6 4.6 4.5 3.9 3.9 3.7 ... 
Panama 9.6 10.0 10.0 9.2 8.7 9.1 8.6 9.0 ... 
Paraguay 3.5 3.5 3.3 2.7 2.4 2.6 2.8 2.8 ... 
Peru 3.0 2.7 3.1 3.2 3.1 3.3 3.2 ... ... 
Philippines 4.4 4.4 4.3 4.3 4.4 4.8 5.2 5.4 ... 
Poland 4.9 4.5 4.2 4.2 4.2 4.4 4.5 5.2 ... 
Portugal 6.1 6.5 6.3 6.5 6.6 6.6 7.5 ... ... 
Qatar 2.8 3.4 3.7 3.7 3.2 4.5 ... ... ... 
Romania 1.7 2.2 2.8 2.1 2.5 2.3 2.0 1.9 ... 
Russian Federation 1.4 2.5 3.1 3.4 3.4 4.0 4.5 4.7 4.7 
Rwanda 2.7 2.9 3.1 ... ... ... ... ... ... 
Saint Kitts and Nevis 14.3 14.4 14.8 15.1 14.8 17.0 16.9 17.6 18.5 
Saint Lucia 8.2 9.0 9.2 9.4 9.2 9.4 9.2 ... ... 
Saint Vincent & the Grenadines 8.2 7.3 7.6 9.5 9.9 11.7 10.9 10.7 ... 
Sao Tome and Principe ... 2.8 2.5 5.1 5.6 6.7 6.9 8.3 ... 
Senegal 0.7 0.7 0.7 1.0 1.3 1.3 1.1 1.0 ... 
Serbia 1.9 2.6 3.8 3.8 3.1 2.9 2.9 3.0 ... 
Seychelles 7.3 7.9 ... ... 7.5 6.5 6.9 7.1 (p) 6.1 (p) 
Singapore 11.6 12.9 12.6 11.9 11.4 11.6 11.8 13.2 14.0 
Slovak Republic 2.4 2.3 4.0 4.0 4.1 4.5 4.2 3.8 ... 
Slovenia 4.7 4.2 4.5 4.4 4.4 4.3 4.9 4.5 ... 
Solomon Islands ... ... ... 1.2 1.6 2.2 2.4 ... ... 
South Africa 8.2 8.3 7.9 7.7 8.0 7.8 ... ... ... 
Spain 4.6 4.9 4.9 4.8 4.7 4.6 4.7 5.2 ... 
Suriname 5.7 6.0 6.0 5.6 6.0 6.4 6.5 6.2 ... 
Swaziland 2.8 2.4 2.6 2.7 3.1 3.3 3.3 3.1 ... 
Sweden 4.3 4.1 3.8 3.8 4.2 4.5 3.7 3.6 ... 
Switzerland 13.2 11.3 11.5 12.2 12.2 12.0 12.5 ... ... 
Tajikistan ... 1.5 1.9 ... ... ... ... ... ... 
Tanzania 1.7 1.6 1.8 1.8 1.8 1.8 1.8 1.8 ... 
Thailand  b 3.0 2.9 3.1 3.4 3.6 3.7 3.7 3.7 ... 
Tonga 9.6 10.1 10.9 11.0  11.7 12.4 12.6 ... ... 
Turkey 7.5 9.2 4.9 3.8 3.8 3.2 3.3 3.6 ... 
Turks and Caicos Islands 8.8 8.2 8.1 7.2 9.4 10.5 11.7 11.5 ... 
Uganda ... ... 2.3 2.7 2.9 2.6 2.7 3.1 ... 
Ukraine 2.1 2.9 3.0 3.8 6.7 5.0 5.2 6.5 6.7 (p) 
United Arab Emirates ... 6.5 6.2 6.1 7.0 8.1 7.7 7.5 ... 
United Kingdom 5.2 5.3 6. 6 7.0 7.0 7. 1 7.7 8.3 ... 
United States 8.1 8.3 8.5 8.5 8.4 8.6 8.7 8.5 ... 
Uruguay 6.5 7.3 8.1 7.0 5.9 6.0 6.1 6.1 5.5 
Vanuatu 6.3 7.7 7.9 8.1 8.4 9.2 8.7 8.2 ... 
Venezuela 2.5 2.6 2.9 2.8 2.2 1.7 2.2 ... ... 
Viet Nam 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 
Yemen 3.1 3.1 2.7 2.6 2.6 2.9 3.6 4.1 ... 
Zambia 10.3 10.0 9.6 9.4 9.1 8.8 8.5 8.1 7.8 
Zimbabwe 7.7 4.0 4.0 8.2 5.7 4.7 3.2 1.5 ... 
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  a  Includes insurance, real estate and business activities. 
b  Value Added refers to GDP. 
c  Refers to banking and insurance. 
d  2000-2004 include insurance. e  At factor cost. 
f  Refers to financial institutions. 
g  At producers' prices. (p)  provisional 
 
Source : United Nations, OECD, Eurostat, and UK Office for National Statistics. 
 
 
Table 2:  Share of employment in the finan ce and insurance services  sectors, 2000-2008 
(percent of total employment)  
 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Algeria ... 1.1 ... 1.0 0.9 ... ... ... ... 
Anguilla ... 3.5 ... ... ... ... ... ... ... 
Antigua and Barbuda ... 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 
Argentina 2.5 2.4 2.3 1.7 1.5 1.7 1.9 ... ... 
Armenia ... ... ... ... ... ... ... 1.2 ... 
Aruba ... ... ... ... ... ... ... 3.7 ... 
Australia 3.7 3.9 3.7 3.7 3.6 3.8 3.8 3.9 3.7 
Austria 3.7 3.5 3.5 3.5 3.7 3.8 3.4 3.4 3.5 
Azerbaijan 0.4 0.3 0.4 0.3 0.3 0.3 0.3 0.4 0.5 
Bahamas ... 10.7 10.8 10.1 11.1 10.1 11.1 11.8 ... 
Bahrain ... 2.2 ... ... ... ... ... ... ... 
Bangladesh ... ... ... 0.5 ... 1.1 ... ... ... 
Belgium ... 4.0 3.9 3.8 3.7 3.8 3.7 3.7 4.0 
Belize ... ... ... ... ... 1.6 ... ... ... 
Bermuda 7.6 ... ... ... ... ... ... ... ... 
Bhutan ... ... ... ... ... 0.9 ... ... ... 
Bolivia 0.5 0.5 0.5 ... 0.4 0.3 0.5 0.6 ... 
Botswana 0.9 ... ... 1.1 ... ... 1.6 ... ... 
Brazil ... ... 1.2 1.3 1.2 1.2 1.2 1.3 ... 
Brunei Darussalam ... 5.6 ... ... ... ... ... ... ... 
Bulgaria ... ... ... 1.1 1.2 1.3 1.3 1.3 1.7 
Canada 4.1 4.3 4.3 4.1 4.3 4.4 4.5 4.5 4.6 
Cayman Islands ... ... ... ... ... 8.7 9.2 9.5 10.1 
Colombia ... ... 1.2 1.2 1.3 1.3 1.2 1.3 1.3 
Costa Rica 1.8 1.9 2.0 2.2 2.2 2.0 2.1 2.6 2.7 
Croatia 2.4 1.9 2.3 2.1 2.0 1.8 2.4 2.3 2.1 
Cyprus 5.4 6.3 5.8 5.0 4.7 5.2 5.3 5.0 5.1 
Czech Republic 2.1 2.1 2.0 2.0 2.0 2.0 1.9 2.1 2.3 
Denmark 3.1 3.1 3.2 3.0 3.0 3.3 3.3 3.1 3.1 
Dominican Republic ... ... ... 2.1 1.7 1.9 1.9 2.1 ... 
Ecuador 1.3 0.9 1.3 1.5 1.3 1.3 1.2 ... ... 
Egypt 1.1 1.1 1.2 1.1 1.0 0.9 0.9 0.9 ... 
El Salvador 3.8 4.1 4.1 4.3 4.1 4.7 4.3 4.7 ... 
Estonia 1.3 1.2 1.3 1.3 1.3 1.1 1.1 1.4 1.6 
EU(27) 2.8 2.8 2.8 2.7 2.7 2.7 2.7 2.7 2.6 
Finland 2.1 2.1 2.0 2.1 2.1 1.9 1.9 2.0 2.0 
France ... ... ... 3.0 2.8 3.0 3.2 3.2 3.1 
French Polynesia ... ... 1.7 ... ... ... ... ... ... 
Georgia 0.5 0.5 0.4 0.5 0.7 0.8 0.8 1.0 ... 
Germany 3.6 3.7 3.7 3.7 3.6 3.6 3.5 3.4 3.4 S/C/W/312 
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   2000 2001 2002 2003 2004 2005 2006 2007 2008 
Gibraltar 8.3 8.5 8.5 8.0 8.3 8.5 9.4 9.6 ... 
Greece 2.6 2.7 2. 3 2.6 2.6 2.6 2.6 2.5 2.6 
Guatemala ... ... ... ... ... ... 3.3 ... ... 
Guyana ... ... 1.3 ... ... ... ... ... ... 
Hungary 2.2 2.0 1.9 1.9 2.1 2.1 2.0 2.1 2.4 
Iceland 4.2 4.1 3.9 4.0 4.4 4.1 4.3 4.9 5.0 
Indonesia 0.5 0.5 0.5 0.4 0.5 0.6 0.7 0.7 0.7 
Iran, Islamic Rep. of ... ... ... ... ... 1.3 1.3 1.3 1.4 
Ireland 4.1 4.0 4.0 4.1 4.5 4.3 4.2 4.3 4.5 
Isle of Man ... 18.9 ... ... ... ... 16.7 ... ... 
Israel 3.3 3.3 3.3 3.3 3.3 3.3 3.4 3.5 3.6 
Italy 3.1 3.0 3.0 3.0 2.9 2.8 2.9 2.9 2.8 
Japan ... ... ... ... ... ... ... ... ... 
Jersey 23.9 24.6 24.6 23.9 23.6 23.6 24.0 24.7 25.0 
Kazakhstan ... 0.7 0.7 0. 8 0.8 0.9 1. 0 1.1 1.2 
Korea, Republic of 3.6 3.5 3.3 3.4 3.3 3.3 3.4 3.5 ... 
Kuwait ... ... ... ... ... 1.2 ... ... ... 
Kyrgyz Republic  ... ... 0.4 0.5 0.4 0.4 0.5 ... ... 
Latvia 1.3 1.4 1.3 1.6 1.8 1.9 2.3 2.0 1.7 
Lithuania 1.0 0.8 1.0 1.2 1.0 1.1 1.1 1.5 1.3 
Luxembourg 11.2 11.7 11.6 11.2 11.0 11.0 11.4 11.5 11.8 
Macau, China 3.5 3.0 3.1 3.1 2.8 2.8 2.6 2.6 2.3 
Macedonia, Former Yugosl av Rep.  ... ... 1.5 1. 3 1.5 1.2 1. 2 1.5 1.3 
Madagascar ... ... ... ... ... 0.0 ... ... ... 
Malaysia ... 2.4 2.5 2.3 2.4 2.5 2.4 2.7 2.6 
Maldives ... ... ... ... ... ... 0.5 ... ... 
Mali ... ... ... ... 0.2 ... ... ... ... 
Malta 3.6 3.7 3.9 3.6 3.0 3.9 4.2 4.1 3.8 
Mauritius 1.5 1.5 1.5 1.6 1.6 1.7 1.8 2.0 2.3 
Mexico 0.8 0.7 0.7 0.7 0.7 0.8 0.9 0.9 0.9 
Moldova, Republic of 0.5 0.6 0.6 0.8 1.0 1.0 1.2 1.2 1.4 
Mongolia 0.8 0.9 1.1 1.4 1.7 1.7 1.7 1.7 1.9 
Montenegro ... ... ... ... ... 1.2 ... ... ... 
Morocco ... ... 1.2 1.3 1.2 1.3 1.5 ... ... 
Namibia 1.1 ... ... ... 2.0 ... ... ... ... 
Nepal ... 0.5 ... ... ... ... ... ... ... 
Netherlands 3.5 3.6 3.4 3.2 3.3 3.2 3.3 3.1 2.9 
Netherlands Antilles 6.6 ... 6. 8 6.4 6.9 7.2 7.5 7.6 7.2 
New Zealand 3.1 2.9 2.9 2.8 3.0 3.1 3.3 3.3 3.1 
Nicaragua ... ... ... 0.8 0.9 0.8 0.8 ... ... 
Norway 2.2 2.2 2.2 2.1 2.1 2.2 2.3 2.3 2.2 
Oman 2.2 ... ... ... ... ... ... ... ... 
Panama 2.8 2.3 2.1 2.0 2.2 2.0 2.2 2.3 2.1 
Paraguay ... ... ... ... ... ... ... 3.8 4.3 
Peru ... ... 1.0 1.0 0.9 1.4 1.2 1.0 1.5 
Peru ... ... 1.0 1.0 0.9 1.4 1.2 1.0 1.5 
Philippines ... ... ... ... ... ... ... ... ... 
Poland 2.6 2.4 2.3 2.1 2.0 2.1 2.3 2.4 2.2 
Portugal 1.8 1.8 1.6 1.7 1.9 1.9 1.7 1.9 1.8 
Qatar ... 1.3 ... ... ... ... 1.2 1.1 ... 
Romania 0.9 0.7 0.8 0.9 0.9 0.9 1.0 1.0 1.2 
Russian Federation 1.3 1.3 1.3 1.2 1.4 1.4 1.5 1.8 1.9 
Saint Lucia 1.6 ... 1.5 1.9 1.9 ... ... ... ...  S/C/W/312 
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   2000 2001 2002 2003 2004 2005 2006 2007 2008 
Samoa ... 2.1 ... ... ... ... ... ... ... 
San Marino ... 3.3 3.4 3.5 3.8 4.0 4.2 4.5 4.6 
Saudi Arabia 0.7 1.0 0.8 ... ... ... 1.2 1.1 1.1 
Senegal ... ... ... ... ... ... 0.5 ... ... 
Serbia ... ... ... ... 1.5 1.6 1.6 1.6 2.0 
Sierra Leone ... ... ... ... 0.4 ... ... ... ... 
Singapore ... 5.6 5.8 5.5 5.6 ... 5.9 6.1 6.7 
Slovakia 1.8 1.8 1.9 2.0 2.1 2.2 2.3 2.0 2.3 
Slovenia 2.5 2.6 2.4 2.5 2.3 2.4 2.2 2.3 2.3 
South Africa 8.0 9.3 9.6 9.6 9.9 10.5 10.2 10.1 12.0 
Spain 2.7 2.4 2.4 2.3 2.2 2.4 2.4 2.5 2.5 
Sri Lanka ... ... 2.6 2.7 2.4 3.1 3.1 3.1 3.3 
Suriname ... ... ... ... 1.7 ... ... ... ... 
Sweden 2.1 2.1 2.1 2.1 2.1 1.9 1.9 2.0 2.0 
Switzerland 5.1 5.2 5.5 5.8 5.6 5.5 5.7 5.8 5.8 
Syrian Arab Republic ... ... ... ... ... ... ... ... ... 
Chinese Taipei ... ... ... ... ... 4.1 4.0 3.9 4.0 
Tajikistan ... ... ... ... 0.8 ... ... ... ... 
Tanzania ... ... ... ... ... ... 0.1 ... ... 
Thailand ... ... 0.8 0.8 0.8 0.9 1.0 0.9 1.0 
Tonga ... ... ... 1.5 ... ... ... ... ... 
Turkey 1.3 1.2 1.1 1.1 1.1 1.1 1.1 1.2 1.2 
Turks and Caicos Islands ... 3.0 4.1 2.9 3.0 2.8 2.6 2.6 ... 
Uganda ... ... ... ... ... ... ... ... ... 
Ukraine ... 0.9 0.9 0.9 1.1 1.2 1.4 1.6 1.9 
United Arab Emirates ... ... ... ... ... ... ... ... 3.2 
United Kingdom 4.3 4.4 4.5 4.4 4.2 4.2 4.3 4.3 4.3 
United States 4.4 4.5 4.5 4.7 4.6 4.6 4.7 4.6 ... 
Uruguay 8.2 9.1 9.3 8.8 8.6 9.3 7.2 7.7 ... 
Viet Nam 0.3 0.3 0.3 0.4 0.4 ... ... ... ... 
 
Source : ILO, Eurostat, and U.S. Bureau of Economic Analysis. 
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    Table 3:  Total financial assets in selected countries and regions, 2007-2008 
  US$ trillion   percent of total 
  2007 2008   2007 2008 
Total 194.0 178.0  100.0 100.0 
US 60.4 54.9  31.1 30.8 
Eurozone 43.6 42.0  22.5 23.6 
Japan 28.7 26.3  14.8 14.8 
China 14.4 12.0  7.4 6.7 
UK 8.0 8.6  4.1 4.8 
Latin America 4.1 3.9  2.1 2.2 
Emerging Asia 4.2 3.8  2.2 2.1 
Russian Federation 1.9 1.1  1.0 0.6 
India 2.6 2.0  1.3 1.1 
Eastern Europe 4.3 1.5  2.2 0.8 
Other 21.8 21.9   11.2 12.3 
 
Notes: 1) Financial assets include equity securities, priv ate debt securities, Government debt securities, and bank 
deposits;  2) As of 1 January 2008, the Eurozone was composed of Austria, Belgium, Cyprus, Finland, France, 
Germany, Greece, Ireland, Italy, Luxembourg, Malta, th e Netherlands, Portugal, Slovenia and Spain. Slovak 
Republic joined on 1 January 2009;  3)Emerging Asia includes Indonesia, Macao, Ma laysia, Philippines, Korea, 
and Thailand;  4) Eastern Europe includes Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, 
Lithuania, Poland, Romania, Slovak Republic, and Ukraine;  2008 exchange rates for both years.  
Source : 
 McKinsey Global Institute "Global capital mark ets: Entering a new era" (September 2009) 
 
 
Chart 1:  Financial system size indicators, 2007 
(percent of GDP, median by income group) 
0%20%40%60%80%100%120%
BANK DEPOSITS / GDP LIQUID LIABILITIES /
GDPPRIVATE CREDIT BY
BANKS AND OTHER
FINANCIAL
INSTITUTIONS / GDPPRIVATE BOND
MARKET
CAPITALIZATION / GDPSTOCK MARKET
CAPITALIZATION / GDPLOW INCOME LOWER MIDDLE INCOME UPPER MIDDLE INCOME HIGH INCOME
 
Source:   Own elaboration based on Beck  et. al.  (2009) 
 
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Table 4:  Insurance density, 2008  
(premiums per capita, averages by income group (US$) 
 Life insurance Non-life insurance Total 
Low income 4.6 6.8 11.4 
Lower middle income 22.0 41.6 63.6 
Upper middle income 112.8 167.0 279.8 
High income (non-OECD) 820.7 531.5 1352.2 
High income (OECD) 1971.8 1378.1 3349.9 
 
Source :  SwissRe (Sigma 03/2009) 
 
 
Chart 2:  Insurance penetration, by income group, 2007  
(life and non-life insurance premium volume to GDP, median values) 
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%
LIFE INSURANCE PREMIUM VOLUME / GDP NON-LIFE INSURANCE PREMIUM VOLUME / GDPLow income Lower middle income Upper middle income High income 
Source:   Own elaboration based on Beck  et. al.  (2009) 
 
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  Chart 3: Private credit, by income group, 1960-2007  
(percent of total private credit to GDP, median values) 
0%20%40%60%80%100%120%
Low income Lower middle income Upper middle income High income
1960 1970 1980 1990 2000 2007
 
Source:   Own elaboration based on Beck  et. al.  (2009) 
 
 
Chart 4:  Financial system size, by income group, 1970-2007  
(percent of total financial assets to GDP, median values) 
0%20%40%60%80%100%120%140%
Low income Lower middle income Upper middle income High income
1970 1980 1990 2000 2007 
Source:   Own elaboration based on Beck  et. al.  (2009) 
 
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  Chart 5:  Financial system size, by income group, 1960-2007  
(percent of liquid liabilities to GDP, median values) 
0%10%20%30%40%50%60%70%80%90%100%
Low income Lower middle income Upper middle income High income1960 1970 1980 1990 2000 2007 
Source:   Own elaboration based on Beck  et. al.  (2009) 
 
 
Chart 6:  Insurance market size , by income group, 1990-2007  
(percent of total insurance premium volume to GDP, median values) 
0%1%2%3%4%5%6%7%8%
Low income Lower middle income Upper middle income High income
1990 2000 2007 
Source:   Own elaboration based on Beck  et. al.  (2009) 
 
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  Chart 7:  Size of the stock market, by income group, 1980-2007  
(percent of stock market capitali zation to GDP, median values) 
0%20%40%60%80%100%120%
Low income Lower middle income Upper middle income High income1980 1990 2000 2007 
Source:   Own elaboration based on Beck  et. al.  (2009) 
 
 
Chart 8:  World exports of financial services, 1995-2007  
(US$ billion and percentage) 
71.684.291.299.8115.1125.3 124.1148.3174.8205.3225.9282.4366.2
050100150200250300350400
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007024681012
Financial services (including insurance) Share of Other Commercial Services
 
Source:   Own elaboration based on WTO data 
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  Table 5:  Major exporters and impo rters of financial services, 2007 
(US$ million and percentage) 
Ra
nk Exporters Value Share 
in 15 
econo
mies Annual 
percent
age 
change Ra
nk Importers Value Share 
in 15 
econo
mies Annual 
percent
age 
change 
1 European 
Union (27) 160187 56.9 36 1 European 
Union (27) 71061 62.5 26 
         Extra-EU 
(27) exports 70270 25.0 35         Extra-EU 
(27) imports 27996 24.6 29 
2 United States 58266 20.7 23 2 United States 18928 16.7 33 
3 Switzerland 20517 7.3 27 3 Canada 4072 3.6 10 
4 Hong Kong, 
China 12425 4.4 34 4 Japan 3610 3.2 21 
5 Singapore 6547 2.3 52 5 India 3262 2.9 175 
6 Japan 6207 2.2 1 6 Hong Kong, 
China 2807 2.5 39 
7 Korea, Rep. of 4001 1.4 57 7 Switzerland 1790 1.6 40 
8 India 3886 1.4 121 8 Singapore 1754 1.5 60 
9 Canada 3234 1.1 25 9 Russian Fed. 1472 1.3 63 
10 Chinese Taipei 1302 0.5 6 10 Norway 1122 1.0 28 
11 Russian Fed.  1174 0.4 99 11 Ukraine 887 0.8 118 
12 Brazil 1090 0.4 48 12 Brazil 807 0.7 -6 
13 Norway 1021 0.4 24 13 Chinese Taipei 782 0.7 -44 
14 South Africa 876 0.3 24 14 Korea, Rep. of 696 0.6 27 
15 Australia 856 0.3 13 15 Turkey 623 0.5 19 
  Above 15 281590 100.0    -  Above 15 113675 100.0    - 
Note:  Based on information available to the Secret ariat. For more information on asymmetries, see the 
Metadata.  
Source :  WTO   
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  Table 6:  Major exporters and impo rters of insurance services, 2007 
(US$ million and percentage) 
Rank Exporters Value Share in 
15 
econo-
mies Annual 
percen-
tage 
change Rank Importers Value Share 
in 15 
econo-
mies Annual 
percen-
tage 
change 
1 European 
Union (27) 40189 57.4 27 1 United States 42761 35.4 14 
         Extra-EU 
(27) exports 20257 28.9 41 2 European Union 
(27) 31482 26.1 14 
2 United States 10287 14.7 2         Extra-EU (27) 
imports 10778 8.9 16 
3 Switzerland 4857 6.9 30 3 Mexico 10936 9.1 18 
4 Canada 3788 5.4 12 4 China 10664 8.8 21 
5 Mexico 1999 2.9 58 5 Canada 6123 5.1 12 
6 Singapore 1697 2.4 7 6 Japan 4118 3.4 -10 
7 India 1504 2.1 35 7 India 3203 2.7 19 
8 Japan 1343 1.9 -15 8 Singapore 2445 2.0 17 
9 China 904 1.3 65 9 Thailand 1916 1.6 7 
10 Bahrain 819 1.2 12 10 Turkey 1542 1.3 35 
11 Turkey 645 0.9 24 11 Brazil 1308 1.1 73 
12 Australia 599 0.9 13 12 Egypt 1282 1.1 31 
13 Brazil 543 0.8 67 13 Korea, Rep. of 1000 0.8 17 
14 Hong Kong, 
China 468 0.7 12 14 Saudi Arabia 991 0.8 68 
15 Korea, Rep. of 415 0.6 52 15 Chinese Taipei 973 0.8 -3 
  Above 15 70055 100.0 -  Above 15 120745 100.0 - 
Note:  Based on information available to the Secret ariat. For more information on asymmetries, see the 
Metadata. 
 
Source:   WTO 
 
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  Table 7:  Exports of financ ial services of selected ec onomies by destination, 2007 
(US$ million and percentage)  
  Value  Share  Annual percentage 
change    Value  Share  Annual percentage 
change  
  2007 2007 2004-
07 2006 2007   2007 2007 2004-
07 2006 2007 
European Union 
(27)           United States           
World 160187 100.0 27 26 36 World 58266 100.0 17 19 23 
European  
Union (27) 89917 56.1 28 31 37 European  
Union (27) 24589 42.2    ...    ...    ... 
United States 22671 14.2 23 18 38 Canada 3773 6.5    ...    ... 31 
Switzerland 10265 6.4 25 24 32 Japan 2536 4.4    ...    ... 8 
Japan 6034 3.8 28 22 35 Bermuda 2214 3.8    ...    ... -11 
Russian Fed.  2203 1.4 50 62 60 Australia 1636 2.8    ...    ... 39 
Above 5 131090 81.8 - - - Above 5 34748 59.6 - - - 
Hong Kong,  
China 1709 1.1 35 27 55 Hong Kong,  
China 1469 2.5    ...    ... 35 
Norway 1555 1.0 30 19 61 Brazil 1061 1.8    ...    ... 54 
Canada 1334 0.8 34 51 38 Mexico 1017 1.7    ...    ... 31 
Chinese Taipei 1298 0.8 37 33 64 China 935 1.6    ...    ... 41 
Singapore 1254 0.8 36 40 45 Switzerland 894 1.5    ...    ... 4 
Australia 1211 0.8 30 59 32 Singapore 748 1.3    ...    ... 19 
Korea, Rep. of 729 0.5 33 14 44 Korea, Rep.of 469 0.8    ...    ... 0 
Turkey 645 0.4 32 12 80 India 399 0.7    ...    ... 33 
South Africa 629 0.4 21 33 58 Norway 398 0.7    ...    ... 49 
China 618 0.4 31 42 33 Chinese Taipei 396 0.7    ...    ... 0 
Above 15 142073 88.7 - - - Above 15 42534 73.0 - - - 
Hong Kong, 
China  a            Singapore  b, c           
World 12425 100.0 40 48 34 World 6547 100.0 39 41 52 
European  
Union (27) 3697 29.8    ...    ...    ... European  
Union (27) 1510 23.1    ...    ...    ... 
United States 3450 27.8 42 61 37 United States 726 11.1 25 54 4 
Singapore 715 5.8 32 57 33 Hong Kong,  
China 666 10.2 31 29 57 
Japan 610 4.9 30 61 43 Japan 351 5.4 57 34 120 
Korea, Rep. of 410 3.3 52 123 14 India 139 2.1    ...    ... 46 
Above 5 8882 71.5 - - - Above 5 3392 51.8 - - - 
Japan           Russian Fed. of d           
World 6207 100.0 12 22 1 World 1174 100.0 63 51 99 
United States 2594 41.8 16 21 8 European  
Union (27) 748 63.7 76 61 93 
European  
Union (27) 2366 38.1    ...    ...    ... Bermuda 172 14.6    ...    ... 691 
Hong Kong,  
China 471 7.6 -2 -7 -5 United States 94 8.0 43 23 65 
Cayman 
Islands 398 6.4 22 42 70 British Virgin  
Islands 35 3.0 59 108 77 
Singapore 57 0.9 -6 17 25 Switzerland 22 1.8 97 109 35 
Above 5 5886 94.8 - - - Above 5 1072 91.2 - - - 
Australia  e                       
World 856 100.0 5 -1 13       
European  
Union (27) 281 32.9    ...    ...    ...       
United States 235 27.5 4 -1 11             
Singapore 71 8.3 5 -1 11             
Hong Kong,  China 54 6.3 5 -1 13             
Japan 32 3.7 5 -1 11             S/C/W/312 
S/FIN/W/73 Page 62 
 
 
    Value  Share  Annual percentage 
change    Value  Share  Annual percentage 
change  
  2007 2007 2004-
07 2006 2007   2007 2007 2004-
07 2006 2007 
Above 5 673 78.6 - - -             
a  Financial intermediation services are not allocated geographically. In 2 007, they accounted for 13 per cent of 
financial services exports. 
b  Financial services exports related to foreign exchange trading are not allocated geographically. c  In 2007, ASEAN coun tries accounted for 10 per cent of  financial services exports. 
d  In 2007, financial services not allocated ge ographically accounted for 1 per cent of exports.  
e  In 2007, financial services not allocated ge ographically accounted for 15  per cent of exports.  
 
Source:  WTO 
 
 
Table 8:  Exports of insurance services of  selected economies by destination, 2007 
(US$ million and percentage) 
  Value  Share  Annual percentage 
change    Value Shar
e  Annual percentage 
change  
                        
  2007 2007 2004
-07 2006 2007   2007 2007 2004
-07 2006 2007 
European Union 
(27)           United States           
World 40189 100.0 9 40 27 World 10287 100.0 12 33 2 
European  
Union (27) 19930 49.6 3 15 15 European  
Union (27) 3042 29.6    ...    ...    ... 
United States 11612 28.9 21    ... 88 Canada 1956 19.0 17 16 -3 
Canada 772 1.9 1 -50 91 Japan 1549 15.1 55 38 42 
Australia 661 1.6 50 -24 69 Bermuda 968 9.4 16 60 -2 
Switzerland 588 1.5 -16 -14 -18 Switzerland 545 5.3 100 162 66 
Above 5 33563 83.5 - - - Above 5 8060 78.4 - - - 
Japan 528 1.3 17 102 -16 Mexico 293 2.8 21 63 19 
South Africa 299 0.7 -1 -12 -1 Australia 213 2.1 0 -21 31 
Mexico 285 0.7 18 -8 74 Korea,Rep.of 201 2.0 40 109 38 
Norway 273 0.7 -1 111 7 Hong Kong,  
China 122 1.2 35 -48 -15 
Turkey 216 0.5 15 56 7 Chinese Taipei 81 0.8 16 44 3 
Singapore 215 0.5 11 100 31 Brazil 73 0.7 10 14 12 
Russian Fed.  185 0.5 16 76 5 Singapore 68 0.7 22 5 48 
China 149 0.4 30 168 5 Chile 57 0.6 0 24 0 
Chile 147 0.4 13 78 13 Israel 49 0.5 1 24 17 
Brazil 130 0.3 26 207 14 China 48 0.5 9 39 -9 
Above 15 35990 89.6 - - - Above 15 9265 90.1 - - - 
Singapore  a            Japan           
World 1697 100.0 9 31 7 World 1343 100.0 8 80 -15 
Australia 186 11.0 6 25 -37 European  
Union (27) 443 33.0    ...    ...    ... 
Korea, Rep. of 155 9.1 -3 26 12 United States 373 27.8 20 376 -9 
Japan 126 7.5 8 5 -5 China 78 5.8 6 10 16 
European 
Union (27) 98 5.8    ...    ...    ... Hong Kong,  
China 51 3.8 -16 14 -44 
China 94 5.6 37 64 45 Chinese Taipei 43 3.2 -7 -6 -9 
Above 5 660 38.9 - - - Above 5 988 73.5 - - - 
Australia  b            Hong Kong, 
China           
World 599 100.0 6 0 13 World 468 100.0 4 1 12 
United States 252 42.1 6 0 13 China 127 27.2 28 57 18 
European  114 19.0    ...    ...    ... Korea, Rep. of 83 17.7 23 -21 80  S/C/W/312 
 S/FIN/W/73 
 Page 63 
 
 
    Value  Share  Annual percentage 
change    Value Shar
e  Annual percentage 
change  
                        
  2007 2007 2004
-07 2006 2007   2007 2007 2004
-07 2006 2007 
Union (27) 
New Zealand 60 10.1 6 0 13 Japan 44 9.4 2 50 33 
Singapore 28 4.8 5 -1 14 European  
Union (27) 41 8.8    ...    ...    ... 
Japan 19 3.2 6 -1 11 Singapore 32 6.8 13 0 3 
Above 5 474 79.1 - - - Above 5 327 69.9 - - - 
Korea, Rep. of  c           Russian Fed.  d            
World 415 100.0 44 62 52 World 379 100.0 16 17 1 
United States 135 32.5 34 -112    ... European  
Union (27) 150 39.6 13 16 -4 
European  
Union (27) 68 16.4    ...    ...    ... Kazakhstan 38 10.1 15 -25 37 
China 29 6.9 5 1 87 Switzerland 22 5.9 -2 40 -57 
Japan 19 4.5    ... 4    ... Isle of Man 20 5.4 52 -55    ... 
      Ukraine 17 4.5    ... 5 -14 
Above 4 250 60.4 - - - Above 5 247 65.5 - - - 
 
a  In 2007, ASEAN coun tries accounted for 30 per cent of  insurance services exports. 
b  In 2007, insurance services not allocated geographically accoun ted for 21 per cent of exports. 
c  In 2007, insurance se rvices not allocated geographically accounted for 17 pe r cent of exports. 
d  In 2007, insurance services not allocated geographically accoun ted for 9 per cent of exports. 
 Source:  WTO
 
 
 
Table 9:  Foreign affiliates sales of financial services  
(US$ billion) 
 2000 2001 2002 2003 2004 2005 2006 
US 194.1 193.7 205.4 222.0 229.5 268.4 304.2 
Japan ... 9.4 11.3 10.6  14.1 16.2 20.5 
Italy ... ... ... ... ... 88.2 94.4 
Germany ... ... ... ... ... 203.7 212.1 
Canada 29.2 29.1 29.0 25.5 27.9 34.9 44.2 
France 64.5 55.1 56.8 ... ... ... ... 
 
Notes: 1) Outward sales of majority owned foreign aff iliates primarily engaged in services activities (according 
to ISIC Rev. 3, Financial intermediation, categories 65 to 67); 2) For the United States, non-bank foreign affiliates; 3) For Japan, data exclude affiliates of mother  companies active in finance, insurance and real estate; 
4) For Canada, data exclude monetary intermediation. 
 Source:  OECD 
 
 
  S/C/W/312 
S/FIN/W/73 Page 64 
 
 
  Chart 9:  Global financial assets, 1990-2008  
(US$ trillion) 
192534 36 38 40 43 46 51 56 6191317 1820222427282932
1014242728313437424851
10183733 26333845546234
050100150200250
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008
Bank deposits Gov. debt securities Private debt securities Equity securities
 
Source:  McKinsey Global Institute, "Global Capital Ma rkets:  Entering a New Era", September 2009  
  
Chart 10:  Exports of financial services of selected leading exporters, Q1 2008 - Q2, 2009 
-80-60-40-200204060
EU(25) United States Switzerland Hong Kong, China Korea, Rep. of Taipei, Chinese
2008Q01 2008Q02 2008Q03 2008Q04 2009Q01 2009Q2 
Source:  WTO  
  S/C/W/312 
 S/FIN/W/73 
 Page 65 
 
 
  Chart 11:  Changes in international bank lending  
(in US$ trillion, by counterparty sector) 
 
 
Notes: BIS reporting banks’ cross-border claims (including inter-office claims) in all currencies plus locally 
booked foreign currency claims on residents of BIS reporting countries. 
 
Source : BIS Quarterly Review, D ecember 2009 (Graph 1). 
 
 
Chart 12:  Changes in banks' cross-border positions vis-à-vis  emerging markets  
(US$ billion) 
 
 
Source : BIS Quarterly Review, Decem ber 2009 (Graph 3). 
  S/C/W/312 
S/FIN/W/73 Page 66 
 
 
  Chart 13:  Foreign claims by developing region  
(US$ billion) 
 
 
Notes: 1) Local claims in local cu rrency, or local currency claims extended by banks’ foreign offices to 
residents of the host country. The bars show reported claims whereas the solid line tracks claims adjusted for 
exchange rate movements; 2) Local liabilities in local currency, adjusted for exchange rate movements; 3) 
International claims comprise cross- border claims in all currencies an d local claims in foreign currencies 
extended by banks’ foreign offices to residents of the ho st country; these claims ar e not adjusted for exchange 
rate movements, since no currency breakdown is available.  
 
Source : BIS Quarterly Review, Decem ber 2009 (Graph 4). 
  
 
   
   S/C/W/312
 S/FIN/W/73
 Page 67Table 10:  Foreign bank ownership, by region 
  1995 2005       
  Total 
bank 
assets 
(US$ 
billions) Foreign-
controlled 
total 
assets 
(US$ 
billions) Total 
foreign 
asset 
share 
(percent) Mean 
foreign 
asset 
share 
(percent) Total 
bank 
assets 
(US$ 
billions) Foreign-
controlled 
total 
assets 
(US$ 
billions) Total 
foreign 
asset 
share 
(percent) Mean 
foreign 
asset 
share 
(percent) Change 
in 
Foreign 
Assets 
(US$ 
billions) Change 
in 
Foreign 
Asset 
Share 
(percent) Change 
in Mean 
Foreign 
Share 
(percent) 
Region (no. of countries)            
All countries (105) 33,169 5,043 15 23 57,165 13,039 23 35 7,996 8 12 
North America (2) 4,467 454 10 8 10,242 2,155 21 17 1,701 11 9 
Western Europe (19) 16,320 3,755 23 24 31,797 9,142 29 30 5,387 6 6 
Eastern Europe (17) 319 80 25 21 632 369 58 49 289 33 28 
Latin America (14) 591 108 18 14 1,032 392 38 29 284 20 15 
Africa (25) 154 13 8 38 156 12 8 35 -1 -1 -3 
Middle East (9) 625 85 14 14 1,194 202 17 17 117 3 3 
Central Asia (4) 150 3 2 4 390 9 2 5 6 0 1 
East Asia and Oceania (13) 10,543  545 5 6 11,721 758 6 7 213 1 1 
 
Source :  IMF (2007).   
  S/C/W/312 
S/FIN/W/73 
Page 68  
Table 11:  Share of banking assets held by foreign banks with majo rity ownership, 2006 
Country 0%-10% Country 10%-30% Country 30%-50% Country 50%-70% Country 70%-100% 
Algeria 9 Moldova 30 Senegal 48 Rwanda 70 Madagascar 100 
Nepal 9 Honduras 29 Congo, Dem. Rep.  47 Côte d'Ivoire 66 Mozambique 100 
Guatemala 8 Ukraine 28 Uruguay 44 Tanzania 66 Swaziland 100 
Thailand 5 Indonesia 28 Panama 42 Ghana 65 Peru 95 
India 5 Cambodia 27 Kenya 41 Burkina Faso 65 Hungary 94 
Ecuador 5 Argentina 25 Benin 40 Serbia & 
Montenegro 65 Albania 93 
Azerbaijan 5 Brazil 25 Bolivia 38 Cameroon 63 Lithuania 92 
Mauritania 5 Kazakhstan 24 Mauritius 37 Romania 60 Croatia 91 
Nigeria 5 Pakistan 23 Burundi 36 Niger 59 Bosnia-
Herzegovina 90 
Turkey 4 Costa Rica 22 Seychelles 36 Mali 57 Mexico 82 
Uzbekistan 1 Malawi 22 Leba non 34 Angola 53 Macedonia 80 
Philippines 1 Tunisia 22 Nicaragua 34 Latvia 52 Uganda 80 
South Africa 0 Mongolia 22 Chile 32 Jamaica 51 El Salvador 78 
China 0 Sudan 20 Venezuela  32 Zimbabwe 51 Zambia 77 
Vietnam 0 Morocco 18 Georgia 32 Namibia 50 Botwana 77 
Iran, Islamic Rep.  0 Colombia 18 Armenia 31   Kyrgyzstan 75 
Yemen, Rep. of 0 Malaysia 16     Poland 73 
Bangladesh 0 Jordan 14     Bulgaria 72 
Sri Lanka 0 Russian Federation 13     Paraguay 71 
Ethiopia 0 Egypt  12       
Togo 0             
 
Note: A bank is defined as foreign owned only if 50 percent or more of its shares in a given year are held directly by foreign nationals.  Once foreign ownership is determined, the 
source country is identified as the country of nationality of the largest foreign shareholder(s).  The table does not capture t he assets of the foreign banks with minority foreign 
ownership. 
 
Source : World Bank (2008) 
  S/C/W/312 
 S/FIN/W/73 
 Page 69 
 
  
  Table 12:  Market share of foreign insuran ce companies in selected emerging economies 
(per cent) 
Market share of ( ≥ 50%) foreign-owned insurers Market share of ( ≥ 50%) foreign-owned insurers 
    
  Life Non-Life  Life Non-life 
Asia    Eastern Europe   
South Korea 10 1 Russia  na na 
China*  2 1 Poland  52 41 
Chinese Taipei  33 12 Czech Republic 81 89 
India  0 0 Hungary  85 89 
Hong Kong 87 74 Slovenia*  17 2 
Singapore* 58 53 Slovakia  97 96 
Malaysia*  81 25     
Thailand*  41 7 Africa    
Indonesia* 48 25 South Africa* 0 14 
Philippines* 61 29 Morocco  52 28 
Vietnam  56 6 Egypt  11 10 
        
Latin America   Middle East   
Brazil  32 43 Turkey  12 27 
Mexico  75 58 Iran  0 0 
Chile  62 63 United Arab Emirates na na 
Argentina  53 35 Saudi Arabia na na 
Venezuela  39 50 Lebanon*  ≥ 64 ≥ 35 
Colombia  38 46 Kuwait*  14 14 
Notes:  The foreign market share is calculated from the total premium volume of companies with a foreign 
majority stake. Latest available figures are used, which typically refer to 2003 (+2002 data;  *2001 data);  in 
India and Iran, foreign insurers are no t allowed to hold majority stakes. 
 
Source:  SwissRe 
 
 S/C/W/312 
S/FIN/W/73 Page 70 
 
 
  Table 13:  Tier 1 Capital and Governments' capi tal injections in the world top 30 banks  
(US$ million) 
Bank Country Tier 1  Tier1 exclu 
gov cap  Gov. 
injection  
JPMorgan Chase & Co   US 136,104 111,104 25,000 
Bank of America Corp   US 120,814 105,814 15,000 
HSBC Holdings   UK 95,336 95,336 0 
Mitsubishi UFJ Financial Group  Japan 77,218 77,218 0 
ICBC    China 74,701 74,701 0 
Citigroup    US 118,758 73,758 45,000 
Royal Bank of Scotland  UK 101,818 71,923 29,895 
Crédit Agricole Group   France 71,681 67,521 4160 
Santander Central Hispano  Spain 65,267 65,267 0 
Bank of China   China 64,961 64,961 0 
China Construction Bank Corporation China 63,113 63,113 0 
Wells Fargo & Co   US 86,397 61,397 25,000 
BNP Paribas   France 58,175 54,639 3536 
Barclays Banks   UK 54,300 54,300 0 
Goldman Sachs   US 62,637 52,637 10,000 
Mizuho Financial Group  Japan 48,752 48,752 0 
Unicredit    Italy 47,529 47,529 0 
Sumitomo Mitsui Financial Group  Japan 46,425 46,425 0 
Deutsche Bank   Germany 43,276 43,276 0 
Rabobank Group   Netherlands 42,252 42,252 0 
Agricultural Bank of China  China 39,998 39,998 0 
Société Générale   Sfrance 42,208 39,845 2358 
Morgan Stanley   US 48,085 38,085 10,000 
Intesa Sanpaolo   Italy 37,681 37,681 0 
Crédit Mutuel   France 35,628 33,964 1664 
Crédit Suisse Group   Switzerland 32,159 32,159 0 
ING bank    Netherlands 44,564 31,161 13,403 
Banco Bilbao Vizcaya Argentaria   Spain 31,126 31,126 0 
UBS    Switzerland 31,373 26,092 5281 
Commerzbank   Germany 31,315 20,858 10,457 
 
Source:  The Banker (2009) 
 
  S/C/W/312 
 S/FIN/W/73 
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  Table 14:  World top 25 banks 
By tier 1 capital  By total assets  
Ranking Bank Country  Ranking Bank Country 
1 JPMorgan Chase & Co  US  1 Royal Bank of Scotland UK 
2 Bank of America Corp.  US  2 Deutsche Bank  Germany 
3 Citigroup   US  3 Barclays Bank  UK 
4 Royal Bank of Scotland UK  4 BNP Paribas  France 
5 HSBC Holdings  UK  5 HSBC Holdings  UK 
6 Wells Fargo&Co  US  6 Crédit Agricole Group  France 
7 Mitsubishi UFJ Financial Group Japan  7 JPMorgan Chase & Co  US 
8 ICBC   China  8 Mitsubishi UFJ Financial Group Japan 
9 Credit Agricole Group  France  9 Citgroup   US 
10 Santander Central Hispano Spain  10 UBS   Switzerland 
11 Bank of China  China  11 ING Bank   Netherlands 
12 China construction Bank Corp. Chin a  12 Bank of America Corp  US 
13 Goldman Sachs  US  13 Société Générale  France 
14 BNP Paribas  France  14 Mizuho Financial Group Japan 
15 Barclay Bank  UK  15 Sant ander Central Hispano Spain 
16 Mizuho financial Group Japan  16 UniCredit   Italy 
17 Morgan Stanley  US  17 ICBC   China 
18 UniCredit   Italy  18 Wells Fargo & Co  US 
19 Sumitomo Mitsui Fin. Group Japan  19 Sumitomo Mitsui Fin. Group Japan 
20 ING Bank   Netherlands 20 China Construction Bank Corp China 
21 Deutsche Bank  Germany  21 Cr edit Suisse Group  Switzerland 
22 Rabobank Group  Netherlands 22 Agricultural Bnk of China China 
23 Société Générale  France  23 Bank of China  China 
24 Agricultural Bank of China China  24 HBOS   UK 
25 Intesa Sanpaolo  Italy  25 Dexia   Belgium 
 
Source :  The Banker (2009).  S/C/W/312 
S/FIN/W/73 Page 72 
 
 
  Table 15  Financial services - specific commitments by sub-sector, January 2010  
Sub-sector Number of 
schedules Percentage 
share of 
Members with 
commitments 
on financial 
services (Max = 
110) Percentage 
share of 
maximum 
possible (Max 
= 139) 
All insurance & insurance-related services 99    
Direct insurance     
Life 86 78 62 
Non-life 90 82 65 
Reinsurance 94 85 68 
Insurance intermediation 62 56 45 
Services auxiliary to insurance 74 67 53 
Banking & other financial services 101    
Acceptance of deposits 98 97 71 
Lending of all types 97 96 70 
Financial leasing 83 82 60 
Payment & money transmission services 89 88 64 
Guarantees and commitments 85 84 61 
Trading     
     Money Market Instruments 76 75 55 
     Foreign Exchange 78 77 56 
     Derivative Products 62 61 45 
     Exchange Rate and Interest Rate Instruments 65 64 47 
     Transferable Securities 81 80 58 
     Other negotiable instruments and financial assets 65 64 47 
Underwriting 78 77 56 
Money broking 62 61 45 
Asset management 78 77 56 
Settlement & clearing for financial assets 62 61 45 
Advisory & other auxiliary  financial services 80 79 58 
Provision & transfer of financial information 76 75 55 
Note:  European Union counted as EU15    
 
Source :  WTO 
   
   S/C/W/312
 S/FIN/W/73
 Page 73Table 16:  Level of market access co mmitments in banking and other financ ial services, by mode of supply  
(per cent of commitments)  
 Mode 1 Mode 2 Mode 3 Mode 4 
Sector full partial unbound full partial unbound full partial unbound full partial unbound 
Acceptance of deposits and other repayable funds 28 29 44 41 34 26 18 79 3 8 83 9 
Lending of all types 25 36 40 41 36 24 20 74 6 8 81 11 
Financial Leasing 25 25 50 42 25 34 16 65 19 9 68 23 
All Payment and Money Transmission Services 21 30 50 38 30 33 17 71 12 8 73 19 
Guarantees and Commitments 27 28 46 41 30 30 18 65 17 8 72 20 
Trading             
Money Market Instruments 27 33 40 49 36 15 24 75 1 11 84 5 
Foreign Exchange 24 33 42 46 36 18 22 77 1 10 83 6 
Derivative Products 27 35 38 57 32 12 24 74 2 12 85 3 
Exchange Rate and Interest Rate Instruments 25 33 41 54 35 11 23 75 2 11 86 3 
Transferable Securities 25 38 37 44 40 16 21 78 1 10 85 5 
Other negotiable instruments and financial assets 27 35 38 51 37 13 22 77 2 10 84 6 
Participation in Issues of all Kinds of Securities 17 27 56 33 29 39 14 62 24 6 67 27 
Money Broking 17 18 64 34 18 48 14 47 40 7 50 43 
Asset Management 16 29 55 35 30 35 12 64 24 7 66 27 
Settlement and Clearing Services for Financial Assets 14 22 64 31 22 47 12 49 40 7 50 43 
Advisory and other Auxiliary Financial Services 27 37 37 40 29 32 20 58 22 7 67 26 
Provision and Transfer of Financial Information 35 34 32 41 29 31 22 51 27 9 59 32 
Notes: Percentages may not add up to 100 per cent due to rounding 
Basis of total is selected sub-sector 
Does not take account of horizontal limitations 
Source :  WTO 
 
Table 17:  Level of market a ccess commitments in insurance services, by mode of supply  
(per cent of commitments) 
Sector Mode 1 Mode 2 Mode 3 Mode 4 
 full partial unbound full partial unbound full partial unbound full partial unbound 
Life 12 33 56 27 31 42 19 80 1 5 88 7 
Non-life 12 58 30 24 52 23 18 80 2 4 88 8 
MAT 50 20 30 50 27 23       
Reinsurance and Retrocession 41 39 19 48 32 19 19 69 12 7 77 16 
Insurance Intermediation 12 32 56 23 24 53 12 49 38 2 54 44 
Services Auxiliary to Insurance 23 32 44 32 26 41 18 57 25 3 65 32 
Notes: Percentages may not add up to 100 per cent due to rounding 
Basis of total is selected subsector 
Does not take account of horizontal limitations 
Source:  WTO   S/C/W/312 
S/FIN/W/73 Page 74 
 
 
  Table 18:  Financial services - su mmary of specific commitments, 2009 
Insurance Banking and other Financial Services Country a b c d e f g h i j k l m n o p q r 
Albania 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Angola           1 1   1                 3 
Antigua and Barbuda     1                             1 
Argentina 1 1 1     1 1 1 1 1 1 1 1 1 1 1 1 15 
Armenia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Australia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Bahrain 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Barbados     1                             1 
Benin           1 1   1                 3 
Bolivia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Brazil 1 1 1 1 1 1 1 1 1 1 1 1 1 1   1   15 
Brunei Darussalam 1 1 1 1 1                       1 6 
Bulgaria 1 1 1 1 1 1 1 1 1 1 1 1   1     1 14 
Cambodia 1 1 1   1 1 1 1 1 1 1 1 1 1 1 1 1 16 
Canada 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Cape Verde 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Chile 1 1 1   1 1 1 1 1 1 1 1   1 1 1   14 
China 1 1 1   1 1 1 1 1 1 1         1 1 12 
Colombia   1 1 1 1 1 1 1   1 1 1 1     1 1 13 
Costa Rica           1 1 1 1               1 5 
Côte d'Ivoire 1 1 1 1   1 1   1                 7 
Croatia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Cuba 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Cyprus 1 1 1     1 1 1 1 1 1             9 
Czech Republic 1 1 1 1 1 1 1 1 1 1 1 1   1 1 1 1 16 
Dominica     1                             1 
Dominican Republic 1 1 1   1 1 1 1       1   1       9 
Ecuador 1 1 1 1 1 1 1 1 1 1 1     1 1 1 1 15 
Egypt 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1   16 
El Salvador           1         1 1     1 1   5 
Estonia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
EC15 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
FYR Macedonia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Gabon 1 1 1 1 1   1       1     1   1 1 10 
Gambia 1 1       1 1 1 1 1 1 1 1 1 1 1 1 14 
Georgia 1 1 1   1 1 1 1 1 1 1 1 1 1 1 1 1 16 
Ghana 1 1 1     1 1 1 1 1 1             9 
Grenada     1                             1 
Guatemala     1                         1 1 3 
Guyana 1 1   1 1 1 1                     6 
Haiti     1     1 1 1 1 1 1             7 
Honduras 1 1 1   1 1 1   1               1 8 
Hong Kong, China 1 1 1 1 1 1 1 1 1 1 1 1   1   1 1 15 
Hungary 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Iceland 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
India   1 1 1   1 1 1 1 1 1 1 1 1   1   13 
Indonesia 1 1 1   1 1 1 1 1 1 1 1   1   1   13 
Israel 1 1 1 1 1 1 1 1 1 1 1 1   1 1 1 1 16 
Jamaica 1 1 1 1 1                         5 
Japan 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Jordan 1 1   1 1 1 1 1 1 1 1 1 1 1 1 1 1 16  S/C/W/312 
 S/FIN/W/73 
 Page 75 
 
 
  Insurance Banking and other Financial Services Country a b c d e f g h i j k l m n o p q r 
Kenya 1 1 1   1 1 1   1 1   1   1   1   11 
Korea RP 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Kuwait           1 1 1 1 1 1 1 1 1 1 1 1 12 
Kyrgyz Republic 1 1 1   1 1 1 1 1 1 1 1   1 1 1 1 15 
Latvia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Lesotho 1 1 1     1 1   1 1 1   1         9 
Liechtenstein 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Lithuania 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Macao, China 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Malawi           1 1 1 1 1 1 1 1 1 1 1 1 12 
Malaysia 1 1 1 1 1 1 1 1 1 1 1 1 1 1   1   15 
Malta 1 1 1 1 1 1 1                   1 8 
Mauritius 1 1 1 1 1 1 1   1 1 1 1     1   1 13 
Mexico 1 1 1   1 1 1 1     1 1 1 1   1   12 
Moldova 1 1 1   1 1 1 1 1 1 1 1 1 1 1 1 1 16 
Mongolia 1 1 1     1     1 1 1 1   1   1 1 11 
Morocco 1 1 1     1 1 1 1 1 1 1         1 11 
Mozambique           1 1 1 1 1 1 1 1 1 1 1 1 12 
Nepal 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
New Zealand 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Nicaragua 1 1 1 1 1 1 1 1 1 1 1             11 
Nigeria 1 1 1   1 1 1 1 1 1 1     1 1   1 13 
Norway 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Oman 1 1 1 1 1 1 1 1 1 1 1     1 1 1 1 15 
Pakistan 1 1 1     1 1 1 1 1 1 1 1 1 1 1 1 15 
Panama 1 1 1     1 1 1 1 1 1 1 1 1   1 1 14 
Papua New Guinea           1 1 1   1 1             5 
Paraguay 1 1 1     1 1                 1   6 
Peru 1 1 1   1 1 1 1 1 1 1 1 1 1 1 1 1 16 
Philippines 1 1 1   1 1 1 1 1 1 1 1 1 1   1 1 15 
Poland 1 1 1 1   1 1   1 1 1 1   1   1 1 13 
Qatar   1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 16 
Romania 1 1 1 1 1 1 1   1 1 1 1 1 1 1 1 1 16 
Saint Lucia     1                             1 
Saint Vinc. & Gren.     1                             1 
Saudi Arabia 1 1 1   1 1 1 1 1 1 1 1 1 1 1 1 1 16 
Senegal 1 1 1 1 1 1 1   1                 8 
Sierra Leone 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Singapore 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Slovak Republic 1 1 1 1   1 1 1 1 1 1 1 1 1 1 1 1 16 
Slovenia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Solomon Islands 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
South Africa 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Sri Lanka 1 1 1     1 1 1 1 1 1 1 1 1 1 1 1 15 
Switzerland 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Chinese Taipei 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Thailand 1 1   1 1 1 1 1 1 1 1 1   1   1 1 14 
Tonga 1 1 1     1 1 1 1 1 1 1 1 1 1 1 1 15 
Trinidad and Tobago     1                             1 
Tunisia 1 1 1 1 1 1 1 1 1 1 1 1   1   1   14 
Turkey 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Ukraine 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 S/C/W/312 
S/FIN/W/73 Page 76 
 
 
  Insurance Banking and other Financial Services Country a b c d e f g h i j k l m n o p q r 
United Arab Emirates           1 1 1 1 1 1 1 1 1   1 1 11 
Uruguay   1     1 1 1 1                   5 
USA 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Venezuela 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Viet Nam 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 17 
Zimbabwe           1 1 1 1 1   1   1   1   8 
Total 86 90 94 62 74 98 97 83 89 85 86 78 62 78 62 80 76   
 
Legends 
a. Life 
b.  Non-life 
c. Reinsurance d.  Intermediation 
e.  Auxiliary Services 
f. Acceptance of deposits and other repayable funds g. Lending of all types 
h. Financial Leasing 
i. All Payment and Money Transmission Services j. Guarantees and Commitments  
k. Trading for own account or for account of customers 
l. Participation in Issues of all Kinds of Securities m. Money Broking 
n. Asset Management 
o. Settlement and Clearing Services for Financial Assets 
p. Advisory and other Auxiliary Financial Services 
q. Provision and Transfer of Financial Information r. Total Insurance + Banking 
 
Source :  WTO 
 
 
 
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