Enhancing financial regulation has been a common view between governments since crisis in Y 2008, but debates over implementation details continue, especially since the recent debt crisis has given rise to Double Dip recession danger.
Bankers and financial experts have agreed that the Global banking system needs prudent regulation, but how to strike a balance between regulation and financial innovation is Key issue not yet solved..
Dai Peng, an official with Export-import Bank of China, one of China’s policy banks, said at Saturday’s 5th Annual Bankers Forum that increased regulation and financial innovation should receive equal attention in the reform of international financial reform.
“The last round of financial crisis is the consequence of ultra market liberalism of the Western countries, which need strict regulation badly,” he said. But for emerging economies with under-developed financial markets, innovation should be encouraged to ensure a healthy market.
The G-20 leaders approved to the Basel III framework at the end of last year, the new Global standards for banking which requires higher capital adequacy ratios for commercial banks.
There should not be a universal standard for all the banks, which could discourage the economic development in emerging markets and in turn hurt global financial stability, he said.
China should work out its own regulating system that betters the development of the Country’s industry, instead of following the regulation standards of the Western countries, he added.
But according to Fan Gang, a former advisor for the People’s Bank of China, the Country’s central bank, emerging economies should be more prudent than developed ones, as they are more vulnerable to external risks.
More “Hot Money” has flowed to emerging economies, and brought about inflation ever since the United States conducted near-Zero interest rates, and opened the faucet for excessive liquidity to the markets, said Fan.
When crisis comes, developing countries are less capable of self-adjusting, which requires more prudent spirit to protect the economy’s operation, he said.
Also, Xu Xiaonian, a professor at China Europe International Business School and also a well-known economist, said it is actually the government that needs the most supervision, especially when the US Federal Reserve created the Y 2008 financial crisis and the recent debt crisis with over-liquidity in the market and near-Zero interest rates.
Xu pointed out that while conducting financial regulation, there should be a clear boundary between the role of government and that of the market.
“The government should be responsible for establishing a framework and setting up standards, but not interfering market operation,” he said at the forum
Xu said the problem with China’s system is that there are too many departments that regulate 1 market, which brings more complication and less efficiency.
“Regulators are after risk less operation, but being risk less equals to profitless,” he said “You have to let market competitors to make mistakes and learn,” said Hong Qi, Managing Director and President of the China Minsheng Bank.
Regulators should rather focus on enterprises with flaws in management and equity structures, said Xu.
According to Dai, a stable financial market does not equal risk free, but a flexible market that would be less hurt by crisis.
Regulators should pay more attention on boosting financial institutions’ profiting abilities to fight risks.
Paul A. Ebeling, Jnr
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.