As you know, the crisis have arguably provided provocative questions regarding the management of financial markets, to which answers are now being actively sought. Ladies and Gentlemen, financial markets provide the liquidity necessary to facilitate transactions in assets. By pooling resources from a myriad of savers, financial markets play a critical role in directing resources to profitable investment projects. The ability of financial markets to effectively contribute to economic development depends on the availability of affordable capital and its efficient allocation in the economy. For this reason, affordability of capital is an important input in any economy’s progress. But the relevant question then is “How Can We Make the Cost of Capital Affordable?” Distinguished Delegates, this question cannot be adequately answered without putting it in some historical context. Most of you will recollect that two decades ago, the Zambian Government embarked on an ambitious financial liberalisation programme and dismantled many forms of administrative controls, in general, to improve the efficiency of our economy. The expectation from this policy shift was that the economy would score efficiency gains primarily arising from increased competition in the financial system. Two decades on, it would be hard to disagree that our financial system has certainly faced increased competition. Whereas the number of commercial banks at the end of the 1990s was 14 after the failure of some insolvent banks, Zambia now boasts of 18 commercial banks who in aggregate have a total of 263 branches.
These exceptional orders of magnitude clearly necessitate prudent decision-making when determining the appropriate regulatory framework for banks in Switzerland. Preventive measures Let me first turn to the preventive measures. These measures should focus on strengthening the shock absorbers of the financial system and thereby making the system more resilient. In the context of the most significant banks, this essentially means that they have to hold substantially more and better quality capital and liquidity. Strengthening capital requirements As we all know, the crisis has revealed fundamental weaknesses in existing capital requirements. 4  Other important reports include “Financial Reform: A Framework for Financial Stability” by the Group of 30, and “The Global Financial Crisis: A Plan for Regulatory Reform”, Committee on Capital Markets Regulation, May 2009. 5  “Restoring Confidence, Creating Resilience: An Industry Perspective on the Future of International Financial Regulation and the Search for Stability”, Institute of International Finance, July 2009. 6  Speech by E. Gerald Corrigan, Managing Director at Goldman Sachs, at the Presidential Symposium, University of Rochester, 10 October 2009. 2  BIS Review 145/2009  To address these weaknesses, a considerable amount of work has already been done and is still underway in the FSB and, crucially, in a number of working groups of the Basel Committee on Banking Supervision (BCBS).