In many developing countries only the banks are required to comply with Basel II, and not the other financial services providers. This carries the risk of promoting regulatory arbitrage. In the context of Pakistan, it is important that the coordination of policies at the regulators’ level i.e. SECP and SBP, be pursued actively. This will be part of our deliberations with our co-regulator.
Let me now talk about the fourth item, i.e. imperfect markets and the challenges they pose. The functioning of the risk assessment systems of banks is clearly affected by the nature of innumerable types of distortions in the markets. In Pakistan, like everywhere else, there are several problems that can create these distortions.