Towards a professional liability of banks in international financial transactions : the case of guarantees on first demand in Europe

Abstract

Banks play a crucial role in economic and social life. They are important providers of capital to businesses and individuals and serve as safe places of deposit (aided by government backed insurance) for some portion, if not nearly all of the funds of most businesses and households. Thus, in the aggregate they are important conduits in the government’s efforts to monitor and control the money supply. Not surprisingly then, there is a strong and persistent public interest in the safety and soundness of banks and other depository institutions, and intensive government regulation is a fact of life for them. Banking regulation also pursues a host of other objectives, such as limiting the political and economic power of individual banking organisations. Nowadays, banks go beyond traditional activities, such as keeping deposits and making loans. For example, they operate the payment systems (both paper and electronic), buy and sell securities for a customer, and issue guarantees on first demand. They have broaden the range of financial services offered to so-called "fee-generating activities" which do not involve any risk taking - in contrast to traditional banking activities. Instead, the role of the bank in these new services is that of a professional provider of services, that is, as highly specialised firm selected for its financial expertise and international reputation and not that of a money manager. Furthermore, banks today play a fundamental role in the transnational arena. Banking is one of the industries which has increased more considerably its volume of international transactions. Thus, banking today is characterised by its international orientation, the complexity of its transactions, and the professionalism of the banks.