Not merely were banks’ own reported profits exaggerating the contribution of the financial sector to the economy, so were the national accounts. In the US, the share of gross value added of the financial sector as a share of GDP rose from around 2–3% in the decade after World War II to about 8% in 2008, driven in large part by a rise in the gross operating surplus of financial intermediaries. And in the UK, in the past decade, the measured scale of the financial sector, compared to GDP, has roughly doubled to around 10%. But this exaggerates the contribution of financial services. Banks do not always charge directly for the services they provide. So the value added of the financial sector is measured by official statisticians (using the United Nations System of National Accounts) as the difference between interest receipts and payments of a “reference rate of interest” which attempts to measure the pure cost of borrowing funds. This convention overstates the true value added of the financial sector because it includes the return to risky lending represented by the difference between the hypothetical pure cost of borrowing funds and the return that is earned. But the fact that risk is channelled through an intermediation industry does not mean that the value added from risk-bearing in the economy is solely attributable to the existence of an intermediation sector. If companies financed themselves directly from households, the statisticians would regard the return on risk-bearing as value added created in that industry.
An important objective of such regulatory convergence is to ensure that crossborder financial linkages act to foster regional growth, while mitigating the propagation of systemic risk across borders through such linkages. The convergence of standards has proceeded in different ways in different parts of the world. In Europe, regulatory convergence has been driven by EU-level bodies and agencies, including the European System of Financial Supervisors and the European Systemic Risk Board. The EU-wide prudential rules are formulated and implemented through directives and regulations legislated by the European Parliament and European Council, with limited room for member states to apply “national discretion”. Recent proposals to establish a single supervisory mechanism for banks led by the European Central Bank, and a single resolution mechanism, will further  2  BIS central bankers’ speeches  reinforce the role of EU-level institutions in the management of financial stability in the Euro area. With significantly more diverse economies and financial systems, promoting greater regulatory convergence in Asia is more likely to proceed on the basis of a set of shared principles for developing and maintaining sound financial systems, while providing for the unique and distinct legal, financial, social and economic structures of individual countries within the region. It will be important to have clarity around the key principles, an inclusive process in agreeing on these principles, and mechanisms that support their effective implementation in individual countries.