Banks in the developed countries have been merging and consolidating, globally, in search of greater scale and efficiency. Their customers are demanding faster access to more customised and integrated financial services. Banks can now deliver one-stop service through faster distribution channels, and develop sophisticated customer relationship systems to customise products. Technology has made this possible. But the cost of investments in technology is high, and can only be justified and recovered if it is spread over millions of customers. Banks like Citicorp have spent tens of billions of dollars, developing IT systems to support their consumer banking services. Being a big bank is no guarantee of success, as shown by the persistent difficulties of the Japanese banks over the last decade, which in the 1980s were among the biggest banks in the world. But being a small bank is definitely a significant handicap. The logic of Singapore’s position is inescapable: if we want strong banks, then they have to be big banks, and if they are to be big banks, then we must have  BIS Review 61/2001  1  fewer banks. This is the reality in many small countries. Switzerland, with a GDP and population about twice our size, now has only two big banks – UBS and Credit Suisse – both of which are world-class players. The Netherlands, four times as big as Singapore, has three – ABN-AMRO, Rabobank and ING, plus Fortis which is partially Belgian. These have become major international players.
Given the strong data, this is not what and how a developed market should behave as there is ample FX market liquidity. If we look at the recent daily volume of FX trade, although lower than last year, it was still double the amount 5 years ago, between USD5-6 billion for the USD/MYR pair and between USD8-10 billion for all other currency pairs. What we need to do now is to remind ourselves and each other constantly that we need to put things in proper perspective. As a group, we constitute the market and individuals, we should behave responsibly. BIS central bankers’ speeches  1  On the other hand, despite the adverse market conditions, we noted that the Malaysian bond market has been holding up quite well despite lower level of liquidity, thanks to domestic institutional players’ support. Nevertheless, we also realized that significant foreign participation in our financial market can be both a boon and a bane for the industry. While high foreign participation has led to better liquidity and lower cost as what we have experienced in the past, it has also brought risks and vulnerabilities. The percentage of nonresident holdings itself has evolved into a risk indicator, regularly quoted by market commentators, where 48% is the number frequently quoted as the percentage of nonresident government security holdings. There was also the argument that large holdings by non-residents might leads to sell offs during period uncertainty, thus causing financial market instability. This is erroneous and misleading.