The causes and consequences of the recent Asian financial crises are still vivid in our minds and we from our part, as professional bankers, must endeavor to ensure that they are not repeated. The Central Banks can use both preventive measures and corrective action to maintain financial stability. A constant and continuous monitoring of risks is a preventive measure. Crisis resolution is a corrective action. A strong regulatory regime would ensure the former and a financial safety net is an essential component of the latter. The two supplement each other. The cooperation of all parties concerned in both these actions is of paramount importance in maintaining financial system stability. In Sri Lanka, as in most emerging economies, we have a bank dominated financial system. Therefore, ensuring banking soundness will inevitably lead to financial system soundness. The recent initiatives taken in this regard are significant – we have enhanced capital requirements to reflect the increased leverage in the industry. Even regulatory capital is at a comfortable margin above the international norm but is still only 10% of risk assets which is the absolute minimum should these risks materialize. Therefore, increasing the minimum capital requirements would provide a healthy platform for growth and expansion of banking business. However, capital is the last line of defence. The more immediate needs are good corporate governance and good risk management which will steer the banking system towards good financial health. A sound corporate governance regime would seek to promote the highest standards of professional behaviour and integrity.
May be, one of the reasons as to why we remain under-developed while developed countries progress faster, may be because of our shortage of human capital, with specific and adequate financial insights and awareness. If this situation is to be rectified, we need to develop well financially-educated people to operate financial institutions. We need well trained people to regulate these institutions. We need the investors to master the art of investment. All in all, we need our future generations to acquire sufficient financial knowledge. At the same time, I hope the knowledge that would be disseminated by this newly formed FSA would, also be valuable to change the attitudes of our financial journalists as well. In that regard, I hope that some of these courses may provide opportunities for our journalists too, to better understand financial service related subjects so that they will be able to provide a more meaningful interpretation of such matters. That too would, hopefully, enhance the general public’s understanding of financial operations and I look forward to such an outcome as well. As we all know there is today a vast majority of people who lack the knowledge to take advantage of the enormous opportunities that may be actually right in front of them. I think we have now taken the initiative to rectify that situation.