Consequently, we do not think that aligning the regulatory framework to banks’ contemporary risk measurement techniques will make lending patterns more volatile. Nor do we think that it will harm competition or dry up capital flows into emerging market countries. The Committee has worked to ensure that the new framework contains sufficient options and simpler forms of rules so that its basic principles can be applied to many kinds of banking organisations in many countries. Basel II presents an excellent opportunity for emerging and developing markets. By stimulating banks to upgrade and improve their systems, business models, capital strategies, risk management systems and disclosure standards, Basel II should improve their overall efficiency and ability to compete globally. It will help to reduce the risk premiums of emerging and developing markets and will help to ensure the stability of the financial system. Still, it is clear that, to accomplish all of these intentions, the new capital framework will be a very different approach to supervision than what we have known so far. It will require hard work on all of our parts. Bankers must work to ensure that their risk management systems meet the standards to qualify to use the more sophisticated measures of risk. For our part, supervisors must ensure that we are comfortable with banks’ progress. But we must also be ready to supervise a more comprehensive capital framework. We will need to share information on the issues we encounter in moving from the 1988 Accord to the three pillars of the new framework.
This would spur hedge funds to disclose more or to obtain a credit rating. Global financial supervision The crisis has set off debate as to whether the global capital market needs a global regulator. I doubt this is workable, or even desirable. A global financial super-regulator requires countries to give up national sovereignty. This is politically unrealistic; witness how carefully the IMF had needed to 2  George Soros in The Crisis of Global Capitalism, Ch. 7 The Global Financial Crisis, p. 136. 5  BIS Review 93/1999  canvas its major shareholders to support its prescriptions and how closely the US Congress scrutinises the IMF’s actions. A more practical, albeit modest, solution is the establishment of the Financial Stability Forum. This brings together both the G7 countries as well as non-G7 financial centres and international organisations such as the IMF, World Bank and the BIS to discuss the vulnerabilities of the world system. The Forum should be able to get best practices and supervisory standards implemented more widely and effectively. The FSF has set up three working groups to study areas of vulnerability highlighted by the crisis: capital flows and exchange rate regimes, highly leveraged institutions and offshore financial centres (OFC). Singapore has been invited to participate in the FSF, together with Australia, Hong Kong and the Netherlands. We are also in the OFC working group. OFCs have attracted considerable attention because of the significant capital flows they generate.