Second, there is the risk of contagion - problems at one bank can spread to others - not just through direct financial linkages but also because, in the absence of timely, transparent information on bank assets, depositors become concerned about other banks which they see as similar. Finally, banks play a central role in payments systems, including payment flows generated by FX trading. The conclusion I draw is that there is enough that is special about banks for their prudential supervision to be retained as a separate activity in any new regulatory structure, and that this argument at present outweighs the case for change. Whether prudential supervision of banks should be a function of the central bank is a separate question. Some argue that other central banking responsibilities (such as the conduct of monetary policy) make for conflicts of interest and therefore that supervision should not be carried out by the central bank. I am not persuaded by these arguments either. Nor am I aware of many examples where the suggested conflicts between a supervisory role for the central bank and its other responsibilities have arisen in practice. Indeed, there are important synergies between the supervisory function and other central bank responsibilities. It makes sense for the ‘micro’ supervision of individual banks in the system to be carried out by the same body that carries out the ‘macro’ function of maintaining the stability of the financial system as a whole, stability which is essential if monetary policy is to be executed effectively and efficiently.
The selection of a champion city recognises the enormous potential of cities across Malaysia, where three quarters of our population live, to be the engines of innovation. In our work at Bank Negara on a range of issues – whether it is to improve access to financing, promote financial inclusion or lift economic efficiency through migration to electronic payments – our collaboration with cities and their leaders has been the source of many solutions and breakthroughs in addressing the challenges that we face. This reflects the close and vibrant communities and networks within cities that can be drawn upon much more quickly and effectively to deliver solutions that will benefit the community. As a champion city for remittances, Kota Kinabalu will similarly be able to show the way in generating new solutions for remittances. There are many valuable lessons that we can take from our recent experience with the Greenback project in Johor Bahru. But it will be important for us to receive your ideas and your input to ensure that we are addressing the specific needs and circumstances of people and businesses in Kota Kinabalu. Kota Kinabalu has a sizeable population of foreign workers who contribute to the state of Sabah, while supporting and improving the livelihoods of their families back home.