Second, we have always kept our banking system supervisory role in-house, even when the notion of separating the monetary authority from financial supervisory authority was held up as a more effective model in more than a few countries. We now see moves to recombine these functions under the central bank post-Great Financial Crisis. The UK, for instance, had restored the supervisory role back to the central bank after a painful episode with the collapse of Northern Rock in 2007. Authorities were widely blamed for inaction, poor coordination and constraints that held back early interventions. Third, is the fact that Malaysia has always relied on a broad policy toolkit, even during the early 1990s when we introduced measures to manage capital flows. It was only in 2012 that the IMF updated their institutional view and began recognising the usefulness of capital flow management measures. More recently, at end-2016, we introduced bold ‘market-correcting’ and prudential measures to ensure the orderly functioning of the domestic financial market. These measures were seen as ‘anti-market forces’ at its inception but they have been proven effective in reducing speculative pressures on the ringgit and imbalances in the domestic foreign exchange market. It has in fact further liberalised the market than the situation before the measures were implemented. Learning from Malaysia’s policy experience There are important lessons behind Malaysia’s approach which are relevant to our policymaking, at least from my perspective. These lessons cut across profession and industry. It is not exhaustive. But I would like to raise 5 points.
However, to meet the requirements applicable from the beginning of 2020 – i.e. after the phase-in period – action will need to be taken. This is particularly the case as regards meeting the leverage ratio requirements, but also as regards gone-concern instruments. The latter are used to recapitalise a bank in the event of imminent insolvency without recourse to government support. This is achieved by writing off designated debt instruments or converting them into equity. In addition to the reforms at national level, reforms are also underway on the Basel Committee on Banking Supervision’s international capital framework. It is likely that riskweighted assets will increase as a result of these international reforms. This expected increase has, as far as possible, been factored into the calibration of the revised Swiss ‘too big to fail’ regulations. All of these reforms – especially the higher leverage ratio requirements – will result in a further strengthening of the Swiss big banks’ resilience. In light of the fact that, in an international comparison, these two institutions are particularly large relative to the economy, this strengthening is necessary for two reasons. First, the big banks’ loss potential relative to their capitalisation is substantial. Given their significance to the Swiss economy, it is important that the big banks remain adequately capitalised, even in the event of such losses occurring. Second, while leverage ratios at both Swiss big banks have improved by international standards, they are still below the average for large globally active banks. The SNB welcomes and supports these reforms.