The issues now range from the choice between the use of rule versus discretion on bank capital, to the use of leverage ratio, and to the implementation issue that includes how to exercise the measures effectively in the context of a financial system that is non-complex, as is the case of the SEACEN economies. On this, I have a view that vigorous stress-testing by supervisors and banks can help keep the effects of procyclicality manageable. I hope this conference will further discuss this issue. Finally, the complexity and cross-border linkages of financial systems will continue to increase, not decrease, following this crisis. On the other hand, the right and effective global regulatory and supervisory structures to handle cross-border implications are still evolving, while information flows and cooperation among regulators and supervisors, at this time, continue to be limited. It is clear that without significant improvements in both information flows and cooperation among supervisors, it will be difficult to prevent or contain future financial crisis spillovers effectively. Ladies and Gentlemen, this eleventh SEACEN conference provides us with an excellent opportunity to discuss these current and important issues. Our challenges are similar, and through our coordinated views and collaborated efforts, the SEACEN economies collectively will be in a stronger position to address these challenges. I wish all of you a successful conference with a fruitful exchange of ideas and a wonderful collaboration.
A bank may thus seek to increase the expected return by taking on higher risk without having to pay for this in the form of higher borrowing costs. Market discipline is weakened when operators are sheltered from taking the full consequences of their own actions. This is referred to as moral hazard. The authorities must regularly undertake a critical review of regulations to determine whether they are formulated with a view to achieving the overriding objectives at minimum cost. 3. Work on crisis prevention since the banking crisis  The lessons drawn from earlier banking crises are the primary means of preventing new crises. The debt crisis in the 1920s was at the root of the caution that continued to be exercised many years later. Operators are still cautious as a result of the banking crisis in the 1990s. The memory of earlier experiences fades over time. It is imperative to establish framework conditions that deter borrowers and lenders from taking excessive risk. The central framework conditions include effective legislation and regulations, a robust payment and settlement system, and effective supervision of institutions and markets. The capital adequacy regulations are more stringent today than when the banking crisis erupted. Sound capital adequacy strengthens banks’ capacity to bear unanticipated losses. The size of the banks’ capital base also sets limits for lending growth. The capital adequacy requirements are being revised. This will also have implications for Norway. The new Bank Guarantee Act is another important change to regulations. The Act provides for a deposit guarantee.