Banking is attracting significant attention from academics and policy-makers, especially in the on-going financial crisis. It is now likely to be one of the fastest growing areas of research. The role of banks in sustaining the sound functioning of contemporary markets and economic growth is well documented but the on-going crisis shows that there are still many issues that remain unresolved. Some of the unresolved issues relate mainly to multinational banking, governance and regulation. Our project intends to contribute to the closure of some important gaps in the literature. Foreign direct investment (FDI) matters significantly to banks because of the benefits of internalizing specific bank-client knowledge and general managerial, technical and marketing knowledge across borders. From a regulatory perspective it matters locally because of the influence of FDI in the functioning of local banking markets (development, supply of credit to domestic firms, mainly small and medium size) and globally because of the difficulty in supervision consequently exacerbating global systemic risk. Our project intends to shed light on three issues relating to multinational banking: (i) to what extent geographic diversification creates value to shareholders; i.e., up to what point is it optimal do engage in multinational banking activity;(ii) are banks internalizing only bank-client specific knowledge (object of the classical research agenda) or also general knowledge based on technical and managerial expertise; (iii) how multinational banks are using their internal markets across borders to reap off opportunities in local markets. One problem that is alleged to have precipitated the financial crisis is the governance of banks. The nature of banking activity creates perverse managerial incentives creating added regulatory concerns. This is another issue that the project intends to address. More specifically, the project intends to look at: (i) what is the pay-performance relation across the world; (ii) what is the relation between managerial compensation and risk-taking at the theoretical and empirical levels; (iii) whether independent directors improve performance and reduce risk-taking or not. The recent financial crisis has exposed severe problems in regulation and supervision around the world. Within this broader context we intend to address, we aim at assessing whether Basel I and Basel II have contributed to increases or a reduction in bank capital. The project will study three sets of issues that are likely to shed light on banking activity across the globe: (i) Understand factors driving globalization of the banking industry and its implications for local and global regulation; (ii) The governance – compensation (equity, stock options and bonuses) and the role of inside and outside directors in globally operating banks and the consequent regulatory implications; (iii) The relation between regulation and capital requirements and the relation between non-accounting signals and default. Our objectives: The financial crisis has brought banking at the center stage of most research being undertaken across several disciplines. With this research we intend to shed light on the factors motivating bank internationalization and its implications for global banking regulation and supervision. In addition the research intends to identify the pay-performance relation; the relation between compensation and risk; and the role of the board of directors to aid regulators and supervisors in mandating good governance practices. Finally the research on capital requirements intends to aid regulators to identify early warning signals and gauge pressure in the corporate sector; and aid regulators to better assess the capital requirements for the banking sector. Specifically, we intend to answer the following questions: (i) What is the influence of geographic diversification on market value of banks? (ii) Are banks internalizing specific bank-client knowledge or general knowledge? (iii) How do multinational banks use internal markets to reap off opportunities in local markets? (iv) What is the pay-performance relation in banking around the world? (v) What is the relation between risk and compensation in the banking industry around the world? (vi) Do independent directors improve performance and reduce risk-taking in banking? (vii) Are capital adequacy requirements more efficient than other instruments (e.g. deposit insurance schemes) in reducing the risk-taking behavior of banks? (viii) Was the 1988 Basel Accord capital requirements framework successful in reducing the risk-taking behavior of banks? (ix) How do banks react to the new Basel II framework, i.e., did they increase their level of capital or adjust their risk exposure? How are these adjustments in capital and risk interrelated? (x) What are the key elements relevant for the study of international banking (manual)?

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