It is also a great pleasure to be with you under such dramatically different circumstances than when we last gathered together. Just two years ago, turbulence in the financial markets around the world had affected, in one way or another, the banking systems of virtually every nation, and bank supervisors were struggling to preserve confidence and stability. Today, of course, the global financial situation is much more stable and the outlook is very favorable.
In the United States, we continue to enjoy the longest economic expansion in our nation’s history, and, following passage of financial modernization legislation, banks and other financial institutions now enjoy unprecedented strategic opportunities.
In Europe, following monetary union in January of 1999, the banking industry, along with other corporate sectors, is becoming more efficient and competitive as economic and political reforms have sharpened the focus on shareholder value.
In Asia, and in many emerging market economies, meaningful headway has been made toward recapitalizing banking systems, ridding banks’ balance sheets of problem assets, and improving supervisory and regulatory frameworks. As a result, economies are growing again, equity markets have rebounded, and foreign capital has begun to return. What a difference two years of hard work can make.
When I last addressed this conference in October of 1998, I said that bank supervisors have a special role in maintaining financial stability, and that our special role has two components: facilitating the resolution of problems when they occur, and taking the necessary steps to lower the risk of problems occurring. Two years ago we were busy with the first component – crisis management and resolution. Today, as we stand on the threshold of a new century, we have the opportunity to focus on the second – prevention.
With that in mind, it is my view that the greatest challenge to the long-term goal of financial stability, both locally and globally, is the accelerating pace of change and financial innovation, driven by the steady march of technological advancement. To be sure, such rapid change has created unprecedented opportunities for both producers and consumers of financial products and services. But it must also be acknowledged that with such remarkable progress has come new, more complex and potentially far-reaching risks.
I’d like to begin by addressing the profound impact of today’s technology on banking and the financial markets, then move on to the implications of that impact for effective supervision in the twenty-first century. On the subject of official supervision, I will discuss the Basel Committee’s Core Principles for Effective Supervision, and then conclude with an update on the Committee’s major initiative to revise and refine the 1988 Capital Accord.
Technology Changing the World, Banking and Supervision
It’s been said that information is power. Whoever said that surely never had to deal with the flood of e-mail most of us receive each day. Indeed, with increasing frequency, the complaint nowadays is about "information overload." With wireless communications enabling us to conduct business anytime, anywhere, I sometimes feel, as I’m sure many of you do, that no matter where I am in the world, I’m expected to be awake and working.
For those who occasionally feel overwhelmed by technology’s marvels, it’s worth remembering that there was a time, and not so long ago, when reliable market information was decidedly scarce and concentrated in the hands of a privileged few. The Rothschilds built an international banking...