And it’s been my experience, having worked both as a regulator for 18 years and similar quantities, in the private sector, especially, 10 years at a major international back, that the loan officers of those institutions knew far more about the risks involved and the people to whom they lent money, than I saw even our best regulators at the Fed capable of doing. So the problem here is something which looked to be a very solid edifice, and indeed, a critical pillar to market competition and free markets, did break down.’ See the preliminary transcript of the 23 October 2008 meeting of the House Oversight and Government Reform Committee on The Role of Federal Regulators in the Financial Crisis.
At this critical juncture in the Asian recovery process, I think it is worth reviewing just how important a stable banking and financial system is to the health and vitality of any market economy - and particularly emerging market economies - and the crucial role that supervision plays in achieving and preserving financial stability. Indeed, effective supervision represents a crucial cornerstone of financial stability, both locally and globally. It is also clear that, given the accelerating pace of change and innovation in the financial services industry, our notion of supervision must encompass discipline applied by the marketplace, as well as official supervision. With these thoughts in mind, and noting the critical role banks play in a market economy, in my remarks today I will discuss the nature and form of an effective supervisory framework for the 21st century, addressing the role to be played by banks themselves, the broader marketplace and official supervisors. On the subject of official supervision, I will address the Basel Committee’s Core Principles for Effective Supervision, and then conclude with a discussion of the Committee’s major initiative to revise and refine the 1988 Capital Accord. Banks’ role in a market economy Let me first discuss the crucial role banks play in a market economy. While specific arrangements may vary from country to country reflecting differences in history, custom and culture, the basic principles are common to nearly all market economies.