Financial innovation, multinational banking, and monetary policy

The subject of the paper is the causal chain from financial innovation to multinational banking and further on to the conduct of monetary policy. The second section identifies the salient features of the present phase of financial innovation. The third section analyzes the consequences for the structure of international banking. The remaining three sections discuss the probable implications for, respectively, (1) the alleged disturbances from international capital flows (which, it is argued, are usually overestimated), (2) the effectiveness of monetary policy (where the principal consequence seems to be the competitive dismantling of discriminatory regulation), and (3) the viability of intermediate targets (which is impaired).