As financial markets are growing ahead of regulatory regimes it is necessary for regulators to maintain a close dialogue with all stakeholders to evaluate market developments and examine necessary changes to the existing regimes to counter unhealthy developments, according to a banking expert.
“Financial institutions and markets can malfunction at any moment of time, without any early warnings of imminent risk to the markets and regulators.
This is just like heart function. A well functioning heart of a person, according to an ECG, can malfunction a few minutes later and he or she may even succumb to heart failure, but this does not undermine the need for regulation and supervision. This, in fact, tells us to strengthen the role of supervision over financial institutions and markets,” K. G. D.D. Dheerasinghe, Deputy Governor Central Bank said, delivering the inaugural address at the international training programme on Banking Supervision and Regulations for officers of the Bangladesh Bank in Colombo recently. He also noted that the financial system stability generally rests with the level of confidence that the public has on financial institutions. “This can only be achieved through proper regulatory and legal regimes that enable regulation of financial institutions, markets and instruments,” he added.
Mr. Dheerasinghe told the Business Times on the sidelines on the sidelines of this event that the new trends in the financial markets such as globalization and market integration, increasing complexity of financial instruments, intensified competition and consolidation require stringent regulation and supervision.
“The financial sector was among the most heavily regulated, with most countries having, until as recently as 20 years ago, extensive controls on prices, entry to the industry, competitive practices, and portfolio composition,” he said, noting that since the boundaries between different kinds of financial institution are becoming more blurred, it makes sense to integrate the supervision of all financial institutions in a single agency.
He also pointed out that this avoids a concentration of power in the hands of the Central Bank that some might see as excessive. Mr. Dheerasinghe, who recently ended a stint as the Central Bank representative at the IMF in Washington, noted that supervisors have to understand all aspects of a financial firm's business, and to foresee the multiple sources of risk it is likely to confront.
“This means that supervision is becoming a more demanding profession, and the skills required of supervisors are becoming greater and more diverse.
Accounting and legal training, while important, are no longer enough. Supervisory authorities are going have to seek also staff with backgrounds in economics and business management,” he said noting that this training programme on Banking Supervision and Regulations in this context is a step in the right direction in this regard. |
E-mail
