The social consequences of these developments are that national governments become more dependent on the multinationals. To control these enterprises international government structures will be necessary. The aim of the paper is twofold. It analyses how financial internationalization can be explained, and subsequently examines the interrelations between this internationalization and economic regulation. External and internal factors drive financial institutions to cross borders.
External factors are deregulation and changes in information technology.
Internal factors are the information-intensive character of the relationship between the financial firm and its client as well as the comparative advantage of the financial firm and the potential for scale economies. Financial internationalization and regulation interact in a dialectic fashion. The interaction is both at the macro-level and at the level of the firm. It also weakens the grip on the individual financial firm. Governments react by coordinating policies at a regional level.