In implementing the minimum regulatory standards, the objective is not to achieve a single set of uniform rules, but rather to focus on implementing rules in the respective ASEAN member countries that are consistent with an agreed set of sound principles of regulation and supervision. This will entail efforts at the national level to align existing regulatory and supervisory regimes with international standards such as the Basel and Insurance Core Principles. In addition, the implementation of well-designed financial safety nets such as deposit insurance systems will further support the successful management and transition during the financial integration process. Surveillance mechanisms also need to be enhanced to be able to take into account the implications of cross-border transactions and the diversity of the market structures across the region which will affect the way risks are measured and managed. Traditional risk metrics may not be able to fully capture more layered risk complexions. As financial systems develop at an uneven pace across the region, and as regional exposures become more significant, more granular and broader risk metrics will need to be developed to capture differences in market structures and different business profiles in local markets which reflect prevailing economic and financial conditions. As an example, loan-to-deposit ratios vary considerably across the region, partly reflecting differences in the depth and sophistication of financial systems and to some the extent whether savers and borrowers have alternative avenues for investment and financing.
I’d like to discuss this morning why the Basel Committee believes that applying transparency and market discipline approaches in the New Capital Accord will help us achieve our objectives to reinforce the safety and soundness of the banking system. My first point will be that, despite its name, the New Capital Accord is about much more than just capital. It is also about maintaining a level playing field and about strengthening incentives to foster sound risk management through three pillars: risk sensitive minimum capital requirements, coordinated supervisory review and - importantly, given the theme of this conference - enhanced market discipline through greater transparency. The New Accord is therefore much more comprehensive than its 1988 forerunner. Second, I’ll comment on the rationale behind the compound approach followed by the Basel Committee that blends rules, discretion, and market-based incentives. It could be viewed as a portfolio of different policy approaches that allow supervisors to achieve or at least draw close to a kind of efficient frontier. Third, I’ll share with you key issues that the Committee faced in drafting the market discipline component of the New Accord and, specifically, I will mention some of the concerns that arose in our public consultations.