Nonetheless, much work remains. First, MAS must build up its expertise in integrated supervision. Boundaries between financial activities are blurring. Supervision of institutions and activities on a silo basis increasingly needs to be complemented by integrated supervision. We must further harmonise rules across similar financial activities, align supervisory approaches across financial industries, and supervise financial groups on an integrated basis. This will help reduce the opportunity for regulatory arbitrage, and also shrink the gaps in the coverage of our supervisory radar. Second, we need to facilitate the implementation of risk-based capital frameworks for our financial institutions. The New Basel 2 Capital Accord will be a major priority for MAS and the local banks. The New Accord will allow banks to better align their capital with underlying risks, but it will require banks to put in place elaborate systems, databases, and processes to assess the riskiness of their assets. MAS will continue to work closely with the local banks to effect a successful transition into Basel 2. Corporate governance In corporate governance, we have raised the bar for the financial sector significantly, and especially for the local banks. The local banks have set up Nominating Committees chaired by independent directors, to ensure that competent individuals are appointed to the Board and key management positions. The local banks will rotate their auditors every 5 years. The local banking groups are also preparing to separate their financial and non-financial activities and unwind cross-shareholdings.
More recently, the region has woken up to the reality of extremist groups linked to Al Qaeda, using terror to undermine countries and bring about an Islamic state in Southeast Asia. Meanwhile China surged ahead, largely unaffected by the crisis. South Korea launched vigorous reforms, cleaning up its banks and restructuring its chaebols. For a few years, the US economy, with its insatiable appetite for imports, was the world’s solo engine of growth. This helped the region to begin recovering from the blow it had suffered. But then the dot-com bubble burst, and far from the V-shaped recovery confidently predicted by many experts, the US economy has shown persistent weakness, weighed down by high levels of household and corporate debt. These upheavals have taken their toll on the global financial industry. After the dot-com bubble and the crash in global equity prices, finance is no longer a hot industry on the go. Profits have fallen, and bad assets have had to be written off. Deals have dried up, and investment banks are slashing payrolls. The excesses of the boom years are now manifesting as corporate scandals, putting the industry on the defensive, both with the public and with regulators. Singapore’s financial sector has been affected by all these developments. Despite all our efforts to liberalise and grow the financial sector, it only grew by an anaemic 1.1% per annum from 1998 to 2001. Many jobs have been lost. However, these disappointing numbers do not tell the whole story.