Wednesday, August 22, 2012

Intrusive regulation sometimes necessary


Business Times: Wed, Aug 22

[SINGAPORE] Active, and at times intrusive, supervision of banks, especially of global banks, must be at the foundation for stable banking and finance, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said at a Citi event last night.

While such supervision is a responsibility of the regulator, banks need to refocus on a culture of responsibility within too, said Mr Tharman, who is also the chairman of the Monetary Authority of Singapore.

Although recent policy debates on the structure of banking raise important questions about how large banks should be, the role of national and global banks, commercial versus investment banks and the shadow banking system, Mr Tharman thinks this risks "an overemphasis on structure and an inadequate focus on the culture of banking and finance, and an inadequate emphasis on the need for active supervision".

"Those are absolute prerequisites for stability in banking," he told the 500 clients, community partners, alumni and staff of Citi gathered at the Gardens by the Bay to celebrate Citi's 200th anniversary and 110th year in Singapore.

"No matter how we restructure the system, no matter how we cut down or dice the pieces, banking will involve risk," he said.

"I don't think any reconfiguration of the structure of banking and finance is going to get us intrinsically to a safer system, taken as a whole," Mr Tharman said, noting that the last major crisis originated in narrow or specialised players, not large universal or global banks, though they did accentuate and propagate it globally.

Rather, the problems underpinning the crisis were "old-fashioned problems that recur with each crisis" - property booms misjudged by banks, regulators and borrowers and the problems of banks relying too heavily on borrowing short-term to invest long-term.

"Without the right culture - whether it's about an investment bank or commercial bank or a monoline player - and without the active and intelligent supervision, we'd have the same old problems over and over again," he said.

Getting back to the basics of financial stability means "active, and sometimes intrusive, supervision" on the part of the regulator, while banks rebuild a culture of responsibility "where the board and the management keep asking questions, never get too mesmerised by optimisation of statistical risks and focus on the risks that can't be quantified, the uncertainties that can't be anticipated well in advance", Mr Tharman said.

Last night, Mr Tharman also thanked Citi for what it has done together with Singapore. Citi employs 10,000 people here now, with 30 per cent growth in headcount in the last three years.

"You're taking advantage of Asia's continuing growth and emergence and in doing so, you're also fortifying Singapore's role as a regional and global financial centre," he said.

Citigroup chief executive Vikram Pandit said earlier: "Citi and Singapore have a lot in common. The world may be diverging in a variety of different ways but we're both busily reconnecting the world - we promote global trade, we promote global capital flows."

The bank's presence in Singapore can only expand, as it seeks to bring its clients to the world and the world to its clients, he added.

  
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