Heightened uncertainties and greater volatility in financial markets have required greater attention on building more robust risk management capabilities. Greater investments have gone towards refining risk quantification techniques to enhance the overall risk management framework. There is also greater emphasis on risk management in the new international regulations such as in the Basel II capital framework. Maintaining relevant financial data and information has also become more important, and has resulted in large investments to enhance data mining and IT capability. While the global financial markets have become increasingly sophisticated, unstable market conditions and the failure of large financial institutions have prompted more stringent regulatory requirements and increased transparency. The message is that integrity and transparency is critical for financial institutions to gain public and investor confidence. In response to a number of high-profile corporate failures, there has also been a review of international accounting standards and practices to address inadequacies in the existing standards. In some countries, independent oversight committees/public  BIS Review 3/2004  1  boards have been formed to establish auditing standards and to impose new rules on auditing quality control and auditor independence. The trend is, therefore, towards improving the value of financial reporting and increasing the overall level of transparency. The 1997 Asian financial crisis also resulted in a reexamination of policies and practices. This has prompted extensive financial restructuring and reform to strengthen domestic financial systems. Five years after the crisis, the financial systems in East Asia have emerged significantly strengthened and demonstrated greater resilience. III.
Most of the emerging markets do not have deep and developed government securities markets, which imply very limited availability of these assets, as a basis for fulfillment of the liquidity requirements-”highly marketable” which is more restrictive than the eligibility criteria for central bank refinancing operations (and central bank liquidity is the most reliable form of liquidity). The options for investing in foreign securities might be  2  BIS central bankers’ speeches  viable, but at the same time it also increases the exposure to foreign exchange risk. Some of the countries might opt for the central bank placements as an alternative, but this is also seen as a solution, which increases the cost of liquidity and hence, increases the costs of finance. The problem of limited availability of proper assets also holds for corporate bonds, which should have a proper credit rating and certain liquidity features to qualify for the LCR. This is difficult to be fulfilled in countries with thin financial markets, and with sovereign and hence corporate credit rating usually bellow the Basel III requirement. So measures that restrict banks ability to finance bond holdings may hamper the further development of the local capital markets. One remaining issue is the interaction between the LCR and the provision of central bank facilities (The Basel Committee committed to work on this during 2013). – The second “dimension of problems” arises from the calculation of the NSFR that requires shift from short-term to more stable funding of assets and business activities.