Conference on Global Financial Crisis: Financial Sector Reform and Regulation

The conference on "Financial Sector Reform and Regulation" was successfully completed on 21-23 July 2009 at ADBI in Tokyo. The conference, jointly organized by the Research and Capacity Building and Training Departments, was part of the Global Financial Crisis project. Fifteen papers were presented in nine sessions and a roundtable discussion was held on the last day.

The first session examined the prospects of developing regional monitoring and cooperation in the financial sector. The issues discussed include capital flows and investor activity surveillance, coordination with the newly-announced global Financial Stability Board, and harmonization of regulations and finance-related taxes to promote more stable and transparent capital flows which would bolster the attractiveness of the region's financial markets.

The second session focused on ways to promote the deepening and integration of Asian bond and money markets. This included the review of the Asian Bond Market Initiative (ABMI) and Asian Bond Fund (ABF), and of recommendations for improvement; while the third session on liberalization/regulation of capital flows focused on the lessons for emerging market economies in terms of proper sequencing of capital flow liberalization.

The fourth session concentrated on the role of state intervention in crisis resolution in the financial sector. One of the papers focused on a case study of the Republic of Korea during the Asian financial crisis period.

Three papers were presented in the fifth session, which focused on the issues of regulatory and supervisory regimes, structure, and cooperation in the context of ways to manage macro-prudential oversight and systemic risks. It was argued that Asian countries largely escaped exposure to various kinds of toxic financial instruments and the contribution of the regulatory framework to this needs to be understood.

The sixth session discussed ways to reduce the pro-cyclicality of financial regulation in order to reduce systemic risks arising from self-feeding "balance sheet" recessions; while the seventh session focused on the regulation of innovative financial products and specific investor groups.

Concern was also raised on the reliability of an early warning system for crises. It was argued that if a crisis occurred exogenously, then the objective should be to try to decouple the impact of the bubble from the impact on the financial system. If the financial system is sound and strong, then the bubble may take place in the asset market; and the financial system may still be spared. In effect, the impacts of the crisis may be minimized or even dissipated.

On the third day of the conference, two papers were presented on credit ratings, credit rating agencies, and their development in Asia. The day ended with a roundtable discussion among authorities from the banking sector, most of who were from Asia. The discussion gravitated around their respective country's experiences on banking sector reforms.