[The chief executive of Northern Rock, Mr Adam Applegarth, in unveiling his bank’s first-half results last July, announced that “the medium-term outlook for the company is very positive,” He spoke of a credit book that was “robust”. But, who would have guessed that less than two months later, Britain’s fifth-largest mortgage lender would be fighting for its life, its branches besieged by customers demanding their savings back? The run on Northern Rock is the most dramatic symptom of the contagion gripping the financial markets. Here was a bank that had grown rich from the innovations of recent years, using abundantly stocked wholesale markets to fund its lively growth, using those same markets to offload bits of it loan book as and when they became unattractive. But the very innovations on which Northern Rock thrived have savaged its business. The company does no lending overseas. Nevertheless, its fate was determined by the distant turmoil in America’s mortgage market. When that spilled over into the securities markets, the money markets that Northern Rock had depended on for years, dried up in a single day at the start of last August. The brave new world that enabled banks like Northern Rock to grow so fast is founded on “securitization” – the process that transform mortgages, credit-card receivables and other financial assets into marketable securities – and the innovation it spawned in “structured” products. This was a revolution that brought huge gains.
With due respect to our friends from the Pacific, I am very pleased to mention that these Games was a great success and an extraordinary achievement for our country and for all those who attended. I understand that some of you were very keen to hold this Seminar to coincide with the Games. But I guess the potential risk from a prudential supervisor’s view of losing participants during the two weeks of the Games may be considered critical and detrimental to achieving the objectives of our Seminar. That aside, the Central Bank of Samoa is very grateful for the opportunity to be co-hosting this years’ event with the Financial Stability Institute in Basel, Switzerland; the Pacific Financial Technical Assistance Centre in Suva; and the Association of Financial Supervisors of Pacific Countries. This Seminar is part of a continuing series of trainings which could only contribute towards enhancing and strengthening our capability as supervisors in the development of our economic and financial systems. This is indeed a great opportunity to learn and share issues of common interest, in particular, the potential risks and threats that could adversely affect the confidence in our banking and financial systems. As you all know, banks and non-bank financial institutions play a vital role in the economic development of any country. Therefore, there is strong public interest in maintaining the stability and financial soundness of these institutions. And recognizing such importance, central banks have been entrusted with the responsibility of not only licensing but supervising them as well.