RESTRICTED  
  
S/FIN/M/76  
 
19 April 2013  
(13-2075)  Page: 1/18  
Committee on Trade in Financial Services    
 
 REPORT OF THE MEETING HELD ON 20 MARCH 2013 
NOTE BY THE SECRETARIAT1 
The Committee on Trade in Financial Services held a meeting on 20 March 2013, under the 
chairmanship of Ms Micong Klimes (Germany). Th e agenda is contained in Airgram WTO/AIR/4088. 
An annotated agenda (JOB/SERV/141) had been circulated prior to the meeting.   
1  ITEM A - MACRO-PRUDENTIAL POLICY AND REGULATION - MEMBERS' EXPERIENCE 
1.1.  The Chairperson recalled that at the previous meeting, the Committee decided to have a 
dedicated discussion of a technical nature on Members' experiences with macro-prudential policies 
and regulation. As agreed, the discussion would be Member-driven, no legal interpretation of GATS 
rules and disciplines would be sought, and no exhaustive list of measures considered to fall within 
the GATS framework would be developed.  
1.2.  Since there was no predetermined list of issues, the Chairperson suggested that those 
Members participating in the discussion could at least indicate what definition of macro-prudential 
policy and regulation is used, the underlying ration ale, and what macro-prudential measures have 
been put in place.  
1.3.  Room documents were submitted by the following delegations (in the order of circulation): 
Turkey (RD/SERV/83), the European Union (RD/SERV/84), Egypt (RD/SERV/85 and ADD.1), the Philippines (RD/SERV/86 and Add.1), Argentina (RD/SERV/87), Korea (RD/SERV/89), Thailand (RD/SERV/90), Ecuador (RD/SERV/91) and India (RD/SERV/92).  
1.4.  The representative of Ecuador said that trends in economic theory had always informed 
economic policies. An important paradigm shift was experienced at the turn of the century, when 
the so-called efficient financial market hypothesis  (dominant in the 1980s and much of the 1990s) 
was gradually replaced by the inefficient financial market hypothesis, which consolidated itself 
during the first decade of the 21st century. This paradigm shift in economic theory was further 
confirmed by empirical evidence.  
1.5.  Over the years, particularly in the last decade, the real economy had been largely and 
steadily overtaken by financial markets. While world GDP reached US$70 trillion in 2012, derivative contracts amounted to US$639 trillion. The reason behind that gap between the real economy and the development of financial markets was the existence of an asymmetric monetary 
system, where a few countries whose national currencies were considered as global reserve 
currencies had wide flexibility to implement mone tary policies and enjoyed enough capacity to 
counter liquidity constraints and crises. At the same time, very lax macro-prudential regulations 
tended to distort the worldwide distribution of savings. This situation made it difficult for other 
countries to implement adequate macro-prudential policies aimed at controlling the volatility of capital flows.  
1.6.  Speculative monetary flows and short-term transactions had been depicted as the causes of 
serious financial crises over the past years, such as the 1995 Mexican crisis (the so-called "Tequila effect"), the 1997 East Asian crisis, and the Russian and Brazilian crises of 1998. The most severe one had been the 2008 global financial crisis, that showed the deleterious effects of an asymmetric 
                                               
1 This document has been prepared under the Secret ariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. S/FIN/M/76 
 
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  global monetary system, concentrated capital flows, risky financial innovation and financial 
deregulation. A clear lesson might be drawn from these events: countries vary in their capacity to counter crises and implement their policies. While countries with global reserve currencies as well as countries that had managed to build internatio nal reserves denominated in those currencies had 
enough capacity to face such situations, others could not. In his view, this raised the question as 
to whether this asymmetry did not affect trade in financial services.  
1.7.  An international consensus had recently emerged on the importance of macro-prudential 
policies as legitimate and indispensable instruments to preserve the integrity and stability of 
monetary and financial systems. The recent financial crisis had shown the lack of analytical frameworks to predict and cope with global financial imbalances, the lack of understanding of system-wide risk, the failure to identify aggressi ve risk-taking by different types of financial 
institutions, and the insufficient recognition of the role of financial innovation and financial 
deregulation in magnifying both the boom and the unwinding of financial imbalances as well as their consequences on the real economy. The crisis reflected overconfidence in the self-adjusting 
ability of the financial system.  
1.8.  Ecuador had not been immune to these crises. In the early 1990s, the country embarked on 
a process of financial deregulation, in line with the so-called Washington Consensus. That 
experiment ended in 1998 with the worst financial crisis in Ecuadorian history. The fiscal cost of 
bank bailouts amounted to 30% of GDP in one year, and 13 of the 15 banks that had received 
public funds went bankrupt. Seventy per cent of  the financial system's equity ended up under 
public administration. The crisis ultimately led to the dollarization of the economy.  
1.9.  After that experience, macro-prudential policies were implemented, starting with the 
strengthening of regulatory and supervisory capacity over the financial system. Further reforms 
were introduced as of 2008. The Central Bank  was mandated to implement the Government's 
economic policy, and could not only pursue inflation targeting but employment objectives as well. 
In addition, the Bank was allowed not only to use indirect instruments, such as the control of short-term interest rates, but also to intervene directly in the economy. Financial intermediation 
was defined as a public service. Bank bailouts were prohibited by the new Constitution. Financial 
intermediation was separated from other financial activities, such as investment banking, and other business, such as mass-media services. A fina ncial sector safety net was later established, 
funded by mandatory contributions from financial institutions in order to reduce moral hazard. Two 
funds were created in that regard: a liquidity fund to perform the functions of lender of last resort, 
and a deposit guarantee fund. Liquidity management had been ensured through interest rate regulation, capital flow management measures, an d the use of direct instruments by the Central 
Bank with the purpose of allocating credit to specific sectors.  
1.10.  Ecuador also promoted a new regional financial architecture. This had translated into 
several initiatives, such as the establishment of a payment compensation system for regional trade 
(Sistema Unico de Compensación Regional de Pagos,  or SUCRE, in Spanish), and of a new regional 
development bank ("Banco del Sur"). Other initiatives included a regional common fund of monetary reserves, a regional financial safety net, and a regional stock market.  
1.11.  The representative of Turkey said that  under the previous policy framework the main 
objective had been price stability and the main policy instrument short-term interest rates. 
Financial stability as such was a second priority. The recent global financial crisis had led to a redefinition of Central Bank's objectives and po licy instruments. Since then, the Central Bank had 
been entrusted to pursue not only price stability but financial stability as well, and the policy 
measures had been expanded to include structural and cyclical instruments. Macro-prudential policy could therefore be defined as the policy aiming at financial stability. Structural policy 
instruments included maturity-based reserve requ irements, leverage-based reserve requirements, 
and reserve options mechanisms. Cyclical policy tools included policy rates, and interest rate corridors, as well as domestic currency liquidity management and foreign exchange liquidity management.  
1.12.  Reserve requirements were based on the ba nks' source of funding,  depending on whether 
banks were funded through core liabilities (e.g. deposits) or non-core liabilities (e.g. borrowing 
from abroad), and whether funds were denominated in  Turkish lira (TL) or in foreign currency. The 
maturity structure was also important. Thus, short-term liabilities attracted higher reserve S/FIN/M/76 
 
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  requirements. Reserve requirements had been used  to address excessive credit growth. Leverage-
based requirements along the lines of Basel III had been recently introduced.  
1.13.  Turkey also implemented a reserve option  mechanism, which basically allowed banks to 
keep a certain ratio of their TL reserve requirements in foreign exchange (FX) and/or gold. The 
fraction of TL-required reserves that could be held in FX or gold was set by the reserve option 
ratio. The amount of FX or gold that could be held per unit of TL was called the reserve option coefficient (ROC). The mechanism, which allowed banks to freely decide the amount of their 
reserves that would be held in FX or gold, was used in case of sudden and significant increases in 
capital inflows, and helped avoid dire ct interventions by the Central Bank. 
1.14.  A Financial Stability Committee had been established in 2011, chaired by the Minister in 
charge of Treasury (representing the Council of Ministers), and also comprising Treasury, the 
Central Bank, the Capital Markets Board (CMB), the Banking Regulation and Supervision Agency 
(BRSA), and the Savings Deposit Insurance Fund (SDIF). Some of the measures adopted by the 
BRSA between 2008 and 2011 included dividend policy, restrictions on FX lending, loan-to-value 
(LTV) ceilings, increased provisions for consumer loans, limits to credit card payments, and 
changes to minimum capital adequacy requirements. 
1.15.  The representative of Egypt said that his country had embarked on a broad programme of 
banking reform in 2004. The purpose was to st rengthen the banking sector, increase its 
robustness to face global and regional competitio n effectively, and contribute to economic growth. 
The plan entailed four main pillars, namely: privatization and consolidation of the banking sector, addressing Non-Performing Loans (NPLs), restruct uring of State-owned banks, and upgrading of 
banking supervision. The first phase of the pr ogramme was concluded in 2008. The second phase 
was launched in 2009, focusing on the restructuring of the remaining specialized public sector banks, facilitating SME development, continuing upgrading banking supervision capacity, and 
applying the Basel II Capital Accord. 
1.16.  The implementation of Basel II was ba sed on two core principles: simplicity and 
communication to the various stakeholders. In 200 8, a series of meetings regarding Basel II had 
been held between the Central Bank, several European banks, a sample of Egyptian banks, the 
Capital Market Authority, legal and audit firms, th e Egyptian Banking Association, and the Egyptian 
Banking Institute. Furthermore, a MOU was signed between the Central Bank and the European Central Bank in cooperation with seven European National Central Banks. The implementation of 
Basel II had spread over four phases, starting  in January 2009 and ending in 2012. Phase 1 was 
characterized by capacity building of banking supe rvisors and issuance of the Central Bank's Basel 
II strategy. Phase 2 (between July 2009 and June 2011) was characterized by intense coordination 
with the banking system based on discussion pa pers on the most significant topics, and the 
elaboration of quantitative impact studies to assess the consequences of future Basel II regulations prior to their legal enforcement. Phase 3 (up to December 2011) focused on the fine tuning of 
future regulations, while the data warehousing framework was finalized in Phase 4. 
1.17.  The representative of the Philippines said that the global financial crisis had brought many 
challenges, foremost of which was the resurgence of large and volatile capital flows. The 
management of these capital flows had led to the realization that risks emanated not only from 
within the banking system but also from outside the system, in particular from financial and non-
financial entities and from non-resident economic agents. As monetary policy tools were not enough to contain the broad-based impact of ca pital flows and moderate - if not prevent - the 
build up of excesses in specific segments of th e banking sector, there was a need to complement 
monetary policy with macro-prudential tools.  
1.18.  The Philippine economy had received much attention lately in view of its robust economic 
growth; low and stable inflation; strong external payments position; sound and stable banking 
system; and much improved fiscal performance. However, these positive developments, coupled with the unequal pace of economic rebound among the advanced economies and emerging markets as well as interest rate differentials an d currency expectations, had led to a resurgence of 
capital flows into the country, in particular since the latter part of 2010.  
1.19.   Inflows into the Philippines were either sy stemic, i.e., remittances from overseas filipinos 
(OFs), or speculative in nature, i.e., mainly through portfolio investment. The Central Bank (BSP) S/FIN/M/76 
 
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  had adopted a broad and pragmatic approach in managing these capital flows, including the 
following instruments: improved monitoring of capital inflows; greater exchange rate flexibility; reserve accumulation (and associated liquidity management); reforms to deepen financial markets; and macro-prudential measures.  
1.20.  Most of the macro-prudential measures ap plied by the BSP were aimed at preventing the 
banking system from fuelling credit booms and therefore engaging in excessive leverage. Those 
measures, common in many countries, included limits on real estate loans, loan-to-value (LTV) 
ratios, general loan loss provisions, minimum capital requirements, large exposure limits, 
management of foreign exchange exposures, and regulations of derivative activities. 
1.21.  While there was no official list of instruments that could be unanimously considered as 
"macro-prudential", the BIS, the FSB and the IMF usually provided general policy guidance. That 
said, non-traditional monetary policy tools continued to be introduced by the more advanced 
economies. The challenge for policymakers was to  find the right balance between the growing set 
of monetary policy tools and the macro-prudenti al policy tools in order to achieve the dual 
objective of monetary and financial stability.  
1.22.  The representative of Argentina said that the paramount objectives of prudential regulation 
were to ensure the stability of the financial system and to protect its users. The macro-prudential 
approach was complementary to the traditional micro-prudential one, which was designed to 
ensure financial institutions' resiliency on a standalone basis. The essence of the macro-prudential philosophy was to identify, prevent and, to the extent possible, unwind vulnerabilities that would have system-wide adverse implications. Instability could stem from unstable international capital 
flows that, instead of behaving anti-cyclically, induced powerful cycles that dragged domestic 
financial systems and the overall economy down.  
1.23.  From that perspective, he explained Arge ntina's macro-prudential framework dealing with 
financial instability arising from international markets. The framework consisted of three 
complementary elements: i) a managed floating exchange rate regime; ii) the accumulation of foreign exchange reserves; and iii) the regulation of capital flows. Since June 2005, Argentina had 
implemented a set of measures to discourage and neutralize short-term capital inflows, thus 
maintaining macro-economic stability and an independent monetary policy. The actions aimed at two different features of capital flows: expa nding the timeframe for foreign investments and 
increasing the cost incurred by short-term flows. In particular, the measures consisted of a 
minimum holding period of one year and a 30% non-remunerated reserve requirement/deposit to 
be held at domestic banks for a period of one year. These two requirements applied to inflows associated with borrowing by firms and banks, non-resident portfolio investments and Argentine 
residents' sales of foreign assets above US$2 million per month. The regulation did not seek to 
interfere with firms' investment projects.  
1.24.  He then turned to measures aimed at preventing currency mismatches. The prudential 
regulation issued by the Central Bank included several elements to manage both the "classical" 
and the "hidden" currency mismatch. He highlighte d three measures in particular: market risk 
capital requirements, limits on foreign currency net global positions, and limits on foreign currency lending.  
1.25.  Countercyclical measures were also part of the macro-prudential framework. In May 2010, 
the Central Bank had introduced a capital conservation buffer, which allowed financial institutions to distribute profits as long as their regulatory capital (after dividends had been paid) was at least 
30% higher than the minimum capital requirement. This capital conservation buffer was more 
stringent than the one foreseen in Basel III.  
1.26.  In addition to the above mentioned policies and regulations, the Central Bank used an array 
of instruments to steer the macro-prudential approach. While not macro-prudential in nature, 
these instruments complemented the above-mentione d measures in safeguarding overall financial 
stability. The additional measures included limits on financial institutions' positions with the public sector; liquidity requirements; a deposit insurance mechanism and macro-prudential monitoring. 
Limits on financial institutions' position with the public sector were introduced in March 2003, when 
the decision was taken to limit financial institutions' long position with the public sector to 35% of banks assets as of mid-2007. As a result, bank expo sure to the public sector  fell from 41% of bank S/FIN/M/76 
 
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  assets in December 2004 to almost 17% in 2010. While this regulation had a primary micro-
prudential concern - limiting bank exposure to the public sector - at the same time it limited the 
risk of common exposure across the financial system – a macro-prudential concern.  
1.27.  Liquidity requirements were determined on the basis of the monthly average of daily 
balances of demand and time deposits and other liabilities arising from financial intermediation, in 
Pesos and foreign currency (including government and private bonds) and standby overdrafts facilities. Requirements ranged between 0 and 20%  depending on the type, currency and residual 
maturity of the liabilities – they were applied on a rising scale as the date of maturity got closer. 
Ensuring the availability of liquidity was both a micro and macro-prudential concern. A private 
deposit insurance scheme had been introduced in  1995. The system was funded by the financial 
institutions themselves and not by the Central Bank. By deterring bank runs, deposit protection 
contributed to overall financial stability.  
1.28.  In terms of macro-prudential monitoring, he  explained that, on a regular basis, the Central 
Bank conducted an assessment of financial stability conditions, including the monitoring of 
domestic and foreign macro conditions, financial positions of households and corporate sectors, 
and of soundness and liquidity indicators, among others. The main results of such assessments were made public through the Central Bank's periodic financial stability reports. 
1.29.  The representative of Hong Kong, China said that the objective of macro-prudential 
oversight was to promote the stability of the financial system as a whole, but not necessarily that 
of individual institutions within the system. The Hong Kong Monetary Authority (HKMA) had adopted a macro-prudential approach in supervisin g banks and property market exposures, with a 
view to safeguarding the stability of the local ba nking system. This approach comprised monitoring 
the latest market developments, issuing guidelines , and implementing specific measures, such as 
loan-to-value ratios and debt-servicing ratios, in order to promote sound lending practices. 
1.30.  In terms of the institutional set up, Hong Kong, China had established a single regulator for 
the everyday line of business. Therefore, from a vertical perspective, banks, securities firms, 
insurance companies and mandatory providence funds were supervised by their respective 
regulators. From a horizontal perspective, all financial institutions marketing the same products or 
services were subject to scrutiny by a single regu lator, who applied the same set of rules to all 
participants for the approval of specific products. This approach fostered a level playing field for all participants in the market. Other than these regu lators, which functioned by line of business, the 
framework for managing and co-ordinating cross-se ctor issues had been reinforced in recent 
years. This had been achieved mainly through the establishment of the Council of Financial 
Regulators (CFR), chaired by the Financial Secretary, and the Financial Stability Committee (FSC), 
chaired by the Secretary for Financial Services and the Treasury. The CFR focused on cross-sector 
regulatory matters with a view to minimizing regulatory gaps or duplications, while the FSC was responsible for monitoring the functioning of the financial system and any developments with 
cross-sector and systemic implications.  
1.31.  While Hong Kong China's framework might not work for other economies, the experience 
showed that it was crucial to establish the regulatory framework that was best suited for each Member's situation. Moreover, what mattered was not the size of the policy space, but choosing 
the policies that best served an economy's needs.  
1.32.  The representative of Australia explained that macro-prudential policy was viewed by 
Australian regulators as being part of the broader and more comprehensive financial stability 
policy framework and a subset of the policies intended to enhance financial stability. Most macro-
prudential policy tools, such as liquidity rules, risk weights, capital standards and large exposure 
limits, were also used in micro-prudential regulation, but with a more holistic or system-wide view 
and differing reasons behind their use. The macro and micro approaches to prudential regulation 
were complementary in that a prudential supervisor that did not take systemic risks into account was failing on both counts.  
1.33.  Accordingly, there was no separate macro-pr udential regulator in Australia. Responsibility 
was vested in five. The Australian Prudential Regu lation Authority (APRA) had the overall objective 
of ensuring financial system stability through the setting of prudential standards and instruments and the supervision of institution. APRA was equipped with the main tools for macro-prudential S/FIN/M/76 
 
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  supervision, including powers over deposit-taking institutions, and engagement with and setting of 
individual capital requirements for regulated en tities. APRA had an Industry Risk Management 
framework to assist it in identifying and acting on significant emerging industry-wide risks and conducted analysis and research on current and emerging industry risks. 
1.34.  The Reserve Bank of Australia (RBA) wa s responsible for financial stability, which was 
ensured through regular assessments, as well as its role as liquidity provider to the financial system and its regulatory powers in respect of  the payments system, including oversight of 
clearing and settlement systems. The Australian Securities and Investments Commission (ASIC) 
was in charge of certain regulatory actions to minimize systemic risk in clearing and settlements systems. ASIC also aimed to identify and asse ss emerging systemic and thematic risks. The 
Australian Treasury advised the Government on financial stability issues and on the legislative and 
regulatory framework underpinning financial system infrastructure. Finally, the Council of Financial 
Regulators contributed to the effectiveness of fina ncial regulation by providing a high-level forum 
for co-operation of APRA, RBA, ASIC and the Australian Treasury. It allowed for information 
sharing on issues and trends that might impact overall financial stability and ensuring that there 
were appropriate coordination arrangements in place to respond to actual or potential instances of financial instability. 
1.35.  In recent years, Australia had implemented a range of prudential-related measures. These 
included the progressive implementation of the Basel III capital and liquidity reforms for authorized deposit-taking institutions to reduce the risk of failure, limit the need and degree of government intervention in any future financial crisis, and promote financial system stability. As 
part of these reforms, APRA had released 12 prudential standards on the quality and consistency 
of regulatory capital for deposit-taking institutions, as well as two prudential practice guides and seven reporting standards and revised guidelines on external credit assessment institutions. 
1.36.  Australia had recently introduced a rang e of measures to improve the financial crisis 
management framework. In 2008, the Financial Claims Scheme had been created to protect depositors and some general insurance policyholders from potential loss due to the failure of 
institutions. This scheme provided for a perman ent guarantee cap of $A250,000 per depositor in 
authorized deposit-taking institution (ADI).  
1.37.  In addition, legislative amendments had been introduced to strengthen APRA’s financial 
crisis management powers. Firstly, APRA was empowered to transfer the business of a failing 
authorized deposit-taking institution to, for example, a healthy ADI or a bridge bank. Secondly, 
the Early Access Facility for Depositors ensured that depositors in a failed ADI had timely access to their deposit funds, which they would otherwise receive through the liquidation process. Similarly, 
the implementation of a Policyholder Compensation Facility allowed for timely access to funds for 
policyholders in the event of fail ure of a general insurer. Thirdly, APRA might appoint or become a 
statutory manager where it considered that an ADI was likely to become unable to meet its 
obligations or was about to suspend payment. This would help to facilitate earlier and more 
effective intervention before an ADI was declared insolvent. Fourthly, APRA might now apply to the Court for the appointment of a judicial manager for general or life insurers, to protect the interests of policyholders and ensure the stability of the fi nancial system. Fifthly, APRA’s preventive powers 
were enhanced through the setting of criteria for granting authorization for entities and amending 
the rules for prudential standards. Finally, APRA ’s correction powers were improved by enhancing 
the triggers for issuing directions and clarifying that APRA might issue directions to foreign ADIs in 
certain circumstances. APRA might also direct an AD I, general insurer or life insurer to recapitalize 
in certain circumstances or increase the capital that they hold to a specified level. 
1.38.  Finally she said, according to Australia's experience, the competent authorities had not been 
constricted by strong commitments on financial services and other obligations under the GATS in 
implementing reforms for macro-prudential reasons. 
1.39.  The representative of the European Union said that the financial crisis had revealed serious 
loopholes in the regulatory and supervisory framework and provided a strong case for macro-
prudential policy. In December 2010, the Europe an Union established the European System of 
Financial Supervision (ESFS), comprising the Euro p e a n  S y s t e m i c  R i s k  B o a r d  ( E S R B )  a s  t h e  E U -
wide macro-prudential financial supervisor an d three micro-prudential European Supervisory 
Authorities (ESAs): (i) the European Banking Authority (EBA) ; (ii) the European Securities and S/FIN/M/76 
 
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  Markets Authority (ESMA) ; and (iii) the European Insurance and Occupational Pensions Authority 
(EIOPA).  
1.40.  The main objectives of the ESAs focused on  contributing to: (i) improving the functioning of 
the internal market, including in particular a high, effective and consistent level of regulation and 
supervision, (ii) protecting depositors, investors,  policyholders, consumers and other beneficiaries, 
(iii) ensuring the integrity, efficiency and orderly functioning of financial markets, (iv) safeguarding 
the stability of the financial system, and (v) strengthening international supervisory coordination. 
In order to meet these objectives, each ESA was required to contribute to ensuring the coherent, 
efficient and effective application of relevant EU law. The ESRB was created as an independent body in charge of macro-prudential oversight. Essentially, its role was to contribute to the 
prevention and mitigation of systemic ri sks to financial stability by means of ex ante  warnings and 
recommendations. Its aim was to identify and mitigate risks that might threaten the stability of the 
financial system and could damage the real economy. 
1.41.  The ESRB relied on central banks' expertis e. This was reflected in the composition of the 
ESRB’s General Board, which brought together the central bank governors and high-level 
representatives of the financial supervisory author ities from all 27 EU member States, as well as 
the President and Vice-President of the European Central Bank (ECB), a member of the European 
Commission and the chairs of three ESAs. To ensure  a link with the ministries of finance, the 
President of the Economic and Financial Commi ttee (EFC) was also a member. The General Board 
was the main decision-making body of the ESRB. 
1.42.  In pursuing its macro-prudential mandate, the ESRB performed a number of key activities, 
namely risk monitoring, risk assessment and, ulti mately, if deemed appropriate, the adoption of 
warnings and recommendations. Warnings identified systemic risks without a detailed description of the actions required, whereas recommendations incl uded advice on policy actions to be taken to 
mitigate the identified risks. Warnings and reco mmendations could be addressed to the European 
Union as a whole, individual EU member States and the three ESAs, as well as the national supervisory authorities. Recommendations might also be addressed to the European Commission 
in respect of the relevant EU legislation. Warnings and recommendations could either be 
confidential, thus communicated only to the ta rgeted addressees, or public. Although ESRB 
recommendations were not legally binding, the addressees were subject to an “act or explain” mechanism. This meant that they had to report to the ESRB on the actions taken to comply with 
the recommendation or to explain why they had chosen not to.  
1.43.  The ESRB members regularly held exchange s of views on risks and vulnerabilities in the 
European Union’s financial system. The ESRB had so far adopted five public recommendations: on 
lending in foreign currencies (September 2011), on banks’ funding in foreign currencies, in 
particular in US dollars (December 2011), on the macro-prudential mandate for national authorities (December 2011), on bank funding and on money market funds (February 2012). 
Furthermore, the ESRB was working on an indicati ve list of macro-prudential instruments, which 
could be used to address systemic  risk by national macro-prudential authorities, including, for 
example, loan-to-value ratios, or caps on debt-to-income ratios. An important and new macro-prudential instrument would be the countercyclical capital buffer, which was part of the new capital 
adequacy framework transposing Basel III standards (the so-called CRD IV package). National 
authorities would be able to use this tool to build up resilience in the banking system in an economic upswing and to support credit supply in an economic downswing. The ESRB would play a 
key role in the necessary exchange of information and coordination between authorities to ensure 
the smooth implementation of this instrument in the European Union. 
1.44.  The European Commission would launch in the coming months the review of the ESRB, as 
foreseen in the regulation. The purpose of the re view was to assess the work of the ESRB so far 
and eventually propose amendments to the regula tion. The impact of the banking union and the 
establishment of the Single Supervisory Mechanism (SSM) would have to be taken into account as 
new macro-prudential competences would be entrusted to the ECB. 
1.45.  The representative of China focused on four  types of macro-prudential measures. Firstly, in 
recent years, China had adopted a combination of  quantitative and price-based measures with a 
view to enhancing countercyclical macro-regulation. By adopting such measures as dynamic 
differentiated reserve requirements and loan-to-value mortgage ratio adjustment, China had 
achieved a steady increase in monetary credit. Secondly, China had adopted policy measures S/FIN/M/76 
 
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  aimed at reducing risks for Systemically Important Financial Institutions (SIFIs), including an 
assessment mechanism for domestic SIFIs and stricter examining standards. In line with the recommendations by the G20 and the Financial Stability Board (FSB), China was in the process of developing assessment methodologies and regulatory  requirements for domestic SIFIs, including 
higher capital ratio requirements and other stricter regulatory standards.  
1.46.  Thirdly, China had set up specific plans for restoration and disposition, ensuring continual 
key services through orderly risk disposition and settlement for failed financial institutions exiting 
the market. The role of the People's Bank of China (PBOC, the central bank of China) as lender of 
last resort and guardian of financial stability had been further strengthened. In the meantime, China had been working on the establishment of a deposit insurance mechanism. Fourthly, measures had been adopted to enhance and improv e the monitoring and evaluation of systemic 
financial risk. In particular, China had established a monitoring index system for financial stability, 
set up monitoring and evaluation methodologies and operational procedures for systemic financial risks, and created a monitoring and reporting system for quasi-financial institutions and private 
lending risks. China had also strengthened the monitoring and analysis of cross-sector, cross-
market and cross-border financial risks, and implemented pressure tests and on-site assessments of the soundness of financial institutions.  
1.47.  In China's view, the study and development of macro-prudential measures was still in an 
exploratory stage within many international organi zations and relevant economies, and there were 
no internationally-accepted standards for them. Although the WTO was not the proper place to develop standards or define prudential measures, this Committee had been charged with following 
developments in the financial services sector and studying the trade implications of regulatory 
measures in this sector. A deeper understanding of  prudential regulation would be indispensable to 
the fulfilment of these tasks. Therefore, he encouraged the WTO to enhance communication and 
coordination with relevant international organizations such as the FSB, the Basel Committee on 
Banking Supervision and the IMF in order to shed  more light on the very important issue of 
prudential regulation. 
1.48.  The representative of Cuba said that his country used prudential measures in line with 
international standards. The following measures were applied: i) legal reserves, as a share of 
profits; ii) single borrower exposure limits; and iii) standards on granting, controlling and 
recovering personal loans. Work was under way on liquidity risk requirements, and the updating of 
capital adequacy requirements.  
1.49.  The representative of Thailand said that prior to the recent global financial crisis, some 
macro-prudential instruments or measures to curb capital flows were perceived as restrictive and 
contrary to capital liberalization. The general recommendation was to avoid them. However, a 
more favourable view of the instruments to address systemic vulnerabilities and safeguard financial stability had emerged since the recent crisis. The shift in thinking was evidenced in the 
recent IMF institutional view on capital flows.  
1.50.  In response to the financial crisis, unconventional monetary policies, such as Quantitative 
Easing (QE), had been introduced by advanced countries, including Japan, the United Kingdom and the United States, to lessen the severity of the situation and stimulate their economies. 
Unintentionally, this had generated excessive liquidity in global financial markets, resulting in a 
surge in capital flows to emerging markets, in particular in Asia and Latin America. A number of countries had therefore implemented prudential tools to address systemic risks associated with 
large capital inflows. Examples included the introduction of a levy on bond and equity inflows, 
limits on foreign currency loans and ceilings on FX derivatives positions. In June 2010, in order to 
reduce short-term external debt, Korea, for example, had introduced ceilings on banks’ foreign 
derivatives positions, fo llowed by a levy on banks' non-deposit foreign currency liabilities. 
1.51.  Thailand had also been using macro-prudenti al policy to address system-wide vulnerabilities 
over the past decades. This included the follow ing measures: adjustments of Loan-to-Value (LTV) 
ratios (2003, 2010) to prevent excessive risk-takin g by banks arising from intense competition in 
the mortgage segment; tightened loan/loss provision rules of IAS 39 (2006-2007), so that banks 
had a buffer against impaired assets, as evidenced by rising Non-Performing Loan (NPL) coverage 
ratios; tightened regulation on credit card loans (2002-2004), such as requiring minimum income 
of 15,000 baht/month, and limiting credit lines to no greater than five times monthly income, etc.; S/FIN/M/76 
 
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  and tightened regulation on personal loans (2005)  by limiting these to amounts not greater than 
five monthly incomes.  
1.52.  The recent crisis showed that macro-prudential policies, when implemented properly, could 
directly tackle sectoral imbalances and enable emerging markets to safeguard financial stability. In 
a world where financial flows were increasingly linked, more active cooperation as well as 
exchange of ideas between WTO and other global re gulatory bodies would help ensure that trade 
rules did not conflict with relevant international standards. This would also help harmonize views 
across regulatory bodies. 
1.53.  The representative of Switzerland explained the countercyclical capital buffer (CCB) 
introduced by the Swiss National Bank (SNB). The CCB was an important component of the Basel 
III framework, and would supplement other capita l requirements. It was a pre-emptive measure 
that required banks to build up capital gradually as imbalances in the credit market developed. It 
had two main objectives: firstly, to protect the banking sector from the consequences of excessive credit growth by increasing its loss-absorbing ca pacity; and secondly, to increase the cost of 
providing credit, thereby helping to avoid excesses. He clarified that the CCB was to be activated 
only when imbalances seemed to be building up. 
1.54.  Two important characteristics were embedded in the CCB framework. First, the buffer was 
developed in such a way that it could be implemen ted on a broad basis or target specific segments 
of the credit market. Second, in line with Basel III, the maximum level of the CCB was set at 2.5% of total domestic risk weighted assets of an individual bank. The CCB applied equally to all banks in Switzerland.  
1.55.  The SNB was in charge of implementing the CCB. The SNB conducted regular assessments 
of the credit market situation to determine whet her the CCB should be activated, adjusted or 
deactivated. If the SNB determined that it was nece ssary to activate or adjust the buffer, it would 
additionally establish the level at which this buffer should be set, as well as the time that the 
banks would have to adjust their own capital buffers. The SNB would then consult the Swiss Financial Market Authority (FINMA) regarding its view of the situation before deciding whether to 
issue an official proposal to the Swiss Government (Federal Council). The final decision was taken 
by the Federal Council. FINMA was in charge of supervising the application of the CCB at the individual bank level. In assessing, for exampl e, the real estate market situation, the SNB 
analysed two categories of indicators: domestic mortgage volume indicators (e.g. ratio of 
mortgages to GDP) and domestic residential real estate price indicators.  
1.56.  The CCB had been activated for the first time earlier this year. Motivated by strong growth 
in both bank credit and real estate prices over the last several years, which had resulted in 
imbalances on the residential mortgage and real estate markets, the Federal Council accepted the 
SNB's proposal. The proposed capital buffer was ta rgeted at mortgage loans financing residential 
property located in Switzerland. The proposal set a level of 1% of associated risk-weighted 
positions that must be achieved by 30 September 2013. 
1.57.  The representative of Norway said that a single agency (the Financial Supervisory Authority 
or FSA) had been established in 1985 to supervise the financial sector as a whole. Norway had 
long experience in combining supervision of individual institutions with macro-prudential 
supervision. Macro-economic surveillance had been strengthened after the Norwegian banking 
crisis in the 1990s. Since then, a macro-prudential approach to supervision had been applied. At the same time, the Norwegian Central Bank had expanded its financial stability surveillance and 
was one of the first Central Banks to publish financial stability reports. The FSA also published 
annual outlook reports on financial risks.   
1.58.  The macro-prudential approach was closely related to micro-prudential supervision. It 
provided valuable information for the supervision of financial institutions and the analysis and 
regulation of financial markets. On the other hand, information on risks in the financial system gathered through micro-prudential supervision could also facilitate macro-prudential supervision. Close cooperation existed between the Norwegian FSA and the Central Bank on macro-prudential 
issues. The two institutions undertook and published complementary analyses and met regularly. 
The Ministry of Finance called regular tripartite meetings with the FSA and the Central Bank to discuss financial stability issues of mutual concern.  S/FIN/M/76 
 
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  1.59.  The representative of Brazil said that the macro-prudential policies he would refer to were 
merely illustrative and had not been picked on the basis of any given set of criteria defining the 
term “macro-prudential”. Rather, they related to the overall objective of safeguarding the stability and integrity of the financial system.  
1.60.  Since the outbreak of the global financial and economic crisis, Brazil had taken macro-
prudential measures to remedy spill over effects of significant and volatile capital flows. Expansionary monetary policies in advanced economies had led to rapid credit growth, strong 
capital inflows, currency appreciation, and pressure  on asset prices in high-performing developing 
economies. In order to cope with the destabilizing effects, macro-prudential and monetary policies had sought to ensure financial stability by averti ng excessive risk exposure in credit and foreign 
exchange markets.  
1.61.  Brazil’s recent macro-prudential oversigh t relied on such measures as increased capital 
requirements for consumer loan exposures involving longer maturities, and unremunerated reserve requirements on short foreign exchange po sitions above a certain ceiling. In 2010, the tax 
on financial transactions (IOF) for non-residents' portfolio investments in fixed income instruments 
was raised. The IOF was also elevated on incoming remittances destined to posting collateral on derivatives positions held at central counterparties for stocks, commodities or futures trading. 
Inflows for equity investments remained subject to a lower IOF tax rate. The IOF rate increases 
were expected to curb excessive short-term and speculative capital inflows.  
1.62.  In early 2011, the Central Bank had imposed unremunerated reserve requirements on 
banks’ short positions in the foreign exchange spot market exceeding a certain amount. This was 
intended to prevent domestic banks from taking advantage of the ample liquidity in global markets 
to significantly increase their funding abroad, and then invest those resources in BRL-denominated domestic assets (capturing the interest rate differential). The concern was that such behaviour 
could leave banks overexposed to currency mismatch and overly dependent on foreign liquidity, 
and hence in a vulnerable position in the event of  a large shock to the exchange rate or a rapid 
reversal of inflows. 
1.63.  Still in the early months of 2011, in order to curtail short-term speculative inflows without 
hampering longer-term flows, the authorities had raised the IOF tax rate on inflows related to direct external borrowing or debt securities issued by residents with a maturity below a defined level. The IOF on external credit inflows had been effective in fulfilling the macro-prudential goal of 
lengthening the tenures of external credit for resi dents. Interestingly, despite the increase of the 
IOF tax rate, the net inflow of external credit  had amounted to US$49.6 billion in 2011 (a 14.6% 
increase compared to 2010), reflecting the global liquidity situation and strong foreign appetite for 
Brazilian assets. 
1.64.  In Brazil's view, national efforts to mitigate spillovers would highly benefit from international 
coordination. In this connection, capital exporting countries who issued reserve currencies could 
further refine their macro-economic policies so as to reduce leakages and enhance efficiency in 
view of the indirect impact on developing econom ies. In a similar vein, countries needing to cope 
with the effects of sizeable capital flows should enjoy as much flexibility as possible to pursue actions tailored to their specific economic circumstances. 
1.65.  The representative of Canada said that the financial crisis had reinforced the importance of 
effective financial sector regulation and supervision in supporting not only a strong, stable and 
open financial sector, but also economic grow th and development. The GATS contained an 
effective and flexible framework for prudential regulation and trade liberalization. The IMF also 
provided useful guidance to all countries regarding the use of certain macro-prudential measures.  
1.66.  While the financial crisis had shown that  there could be risks associated with capital 
flows for some small economies with liberalized capital accounts, the re-introduction of any 
measure to manage such risks should respond to extreme situations, be timely, targeted, temporary, and supplemented by more fundamental policy adjustments to support continued movement towards full liberalization. Thus, the IMF's guidance continued to be consistent with 
GATS rules, as both promoted financial sector liberalization while providing flexibility for prudential 
measures, without providing a "blank cheque" to undertake trade-distortive measures.  S/FIN/M/76 
 
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  1.67.  Canada maintained a number of macro-pruden tial tools to identify and respond to systemic 
risks to the Canadian financial system. The identifica tion of systemic risks was a first step. Each of 
Canada’s financial sector regulatory agencies (the Finance Department, the prudential regulator, the deposit insurer, and the Central Bank) had specific mandates related to financial stability and 
the monitoring of systemic risks. For exampl e, the Bank of Canada published a semi-annual 
Financial System Review  outlining the main risks to the Canadian financial system. Close 
coordination was another key element of Canada’s  macro-prudential framework. For example, the 
heads of the regulatory agencies met regularly to discuss systemic vulnerabilities and possible 
mitigating actions at the Senior Advisory Committee.  
1.68.  Although each agency had its own tools to respond to systemic risks, the agencies worked 
closely together when taking action to mitigate those risks. For example, concerning the housing 
market, Canada made adjustments to the criteria for high-ratio government-backed insured 
mortgages in 2008, 2010, 2011, and in July 2012. These changes were applied in a non-discriminatory manner to domestic and foreign mortgage lenders, and included the following 
features: reducing the maximum amortization period from 40 to 25 years by five-year intervals in 
successive adjustments; lowering the maximum refinancing amount from 95% to 80%; and increasing the minimum down-payment to 5%. In addition, government-backed mortgage 
insurance was no longer provided for home-equity lines of credit, maximum debt service ratios 
were required as qualification criteria for borrowers, and a 20% down-payment for non-owner occupied properties was introduced to discourage speculation in the housing market. Together, these changes had worked to reduce speculation an d leverage in the market and slow the growth 
of household credit. 
1.69.  The representative of India said that Re serve Bank of India (RBI) had been using macro-
prudential policies, notably countercyclical policies, to ensure financial stability. RBI’s 
countercyclical policies had focused on banks due to the centrality of the banking system in the 
Indian economy. In the interest of time, he would not provide a detailed account of those policies during the period 2004-2011, which were described in the room document circulated by his 
delegation, but would focus instead on the conclusions drawn by his authorities on this experience.   
1.70.  Implementation of countercyclical policies wa s based on tracking of various indicators in the 
economy, notably the general credit growth and the sectoral credit growth. This was complemented with market intelligence and some feedback from the Annual Financial Inspection of 
banks. Detailed statistical analysis or modelling was not used. The decisions were based on 
constant expert monitoring of the macro economy.  
1.71.  The RBI, being the monetary authority as well as the regulator and supervisor of banks, 
non-bank financial companies and other important segments of the market, had the necessary 
information and overall view of the risks building up  in the system. It was, therefore, well placed 
to operate the countercyclical policies. Monetary policy and countercyclical policy were in the same 
direction. Such a coordinated response was facilitated by RBI’s wide regulatory ambit.  
1.72.  It was important to deal with sectoral exuberance through countercyclical policies, even as 
monetary policy was being used to deal with generalized exuberance. Interest rates alone, being a blunt instrument, would not have been able to address sectoral excesses. Countercyclical policies 
were able to dampen exuberant credit growth in the targeted sectors. However, their effect was 
asymmetrical during downturns. Despite aggressi ve easing of monetary policy and prudential 
measures in a countercyclical fashion, the credit supply did not increase adequately during the 
downturn.  
1.73.  Looking forward, the RBI was keen to introd uce a countercyclical provisioning approach with 
the objective of building up buffers for the bank ing system at times when the banks were making 
profit so that these could be used to absorb losses in case of downturn. A draft discussion paper on 
the subject had been put in the public domain in March 2012 for comments. 
1.74.  He then turned to two questions raised  in paragraph 17 of the document submitted by 
Ecuador (S/FIN/W/84). Concerning question 17(b) he replied that countercyclical provisioning 
measures aimed to promote financial stability which, in turn, encouraged trade in financial services 
including cross-border banking services. In replying  to question 17(c), he considered that it would S/FIN/M/76 
 
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  be better if all organizations involved, including the WTO, cooperated to achieve better cross-
border harmonization of rules.    
1.75.  The representative of Indonesia said that the previous interventions showed the significant 
role of policy space in order to implement macro-prudential measures confidently. Relevant 
examples had been provided of macro-prudential me asures that could be taken in accordance with 
paragraph 2.A. of the GATS Annex on Financial Services. Turning to the Indonesian experience, he said that during the 1997-1998 financial crisis, th e decision had been taken not to liquidate any 
bank, but to provide ailing banks with liquidity support. However, this had led to problems since 
banks' shareholders were not able or willing to return the liquidity support back to the Central 
Bank. During the 2008 global financial crisis, the Indonesian authorities decided to bail out one of the ailing banks in application of safety net provisions. However, this also turned out to be 
problematic since foreign bank shareholders ended up suing the Government. 
1.76.  The representative of Japan said that the Mi nistry of Finance, the Financial Services Agency 
(FSA), and the Bank of Japan were in charge of prudential measures in Japan. The FSA was 
managing micro-prudential measures in an integrated fashion, while the Ministry of Finance and 
the Bank of Japan were responsible for macro-prudential measures. 
1.77.  In order to protect depositors and ensure the stability of the financial system, it was 
important to keep an appropriate balance betw een securing sound management and influencing 
the actual economy. For instance, in case the au thorities focused on the soundness of the balance 
sheets of financial institutions by strengthening cross-border capital flows, it would be difficult to achieve sustainable economic growth when the foreign capital flows decreased. If financial 
institutions only took care of ensuring their own financial soundness and were reluctant to issue 
new loans, it would lead to a lack of financing necessary to maintain development. In the communiqué of the "Meeting of G-20 Finance Ministers and Central Bank Governors", which had 
been held in February 2013, Ministers encouraged further efforts to attract long-term financing for 
investment. From that perspective, facing Lehman's collapse, Japan did not restrict any transfers among foreign countries, but rather called on financial institutions to cooperate with financing for 
small and medium-sized enterprises based on th e "Act on Temporary Measures to Facilitate 
Financing for Small and Medium-Sized Enterprises", among other instruments.  
1.78.  He further said that the GATS Annex on Financial Services provided each country with the 
right to take measures for prudential reasons. On the other hand, the Annex also stated that the 
measures should not be used as a means of avoiding the Member's commitments or obligations 
under the GATS. This might be interpreted that , when taking prudential measures, Members 
should take care not to obscure the real pu rpose of WTO agreements, which was to achieve 
economic growth through vigorous trade. 
1.79.  He added that it was extremely important that international agreements on global financial 
regulatory reforms be steadily implemented by ea ch country. For instance, a new capital adequacy 
ratio regulation in accordance with Basel III would be implemented everywhere from March 2013. 
There were currently about 20 banks subject to international standards, and those banks would also start implementation from March 2013. In a situation where each financial market deepened its global relationships, a delay in one country could have an international impact. Therefore, 
Japan encouraged each country to implement that agreement. 
1.80.  The representative of Korea said that, afte r weathering two financial crises, authorities had 
learnt that macro-prudential measures were critical to ensuring sustainable growth in an export-
oriented open economy like Korea's whose curre ncy was not a reserve currency. Unfortunately, 
however, Korea experienced a negative feedback loop where an unstable financial system had directly led to a recession which then hampered trade expansion. Therefore, Korea was fully aware 
of the strong importance of macro-prudential measures, such as adequate regulations and sound 
economic management.  
1.81.  Macro-prudential policies implemented by the Korean Government had been carefully 
designed and tailored based on the country's ow n experiences. The measures adopted might be 
divided into two groups: ex ante measures desi gned to prevent potential crises, and ex post 
measures put in place to address problems and i ssues after the outbreak of a crisis. The Korean 
Government focused on the following goals: first, to enhance the macro-prudence of the Korean S/FIN/M/76 
 
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  economy through reducing capital flow volatility while pursuing capital liberalization and market 
opening as opposed to market or business regulati on; second, to establish safeguards to prevent 
future financial crisis; and third, to devise measures in line with global trends and discussions being held at the FSB and the IMF on enhancing macro-prudence. 
1.82.  Ex ante macro-prudential measures might lead to a slight contraction in trade finance 
whereas ex post measures might lead to controversy over whether the Government is providing subsidies through government-owned banks. However, if the collapse of the financial system 
resulted in the slowdown of the real economy, it would be followed by a contraction in trade and 
ultimately have a negative impact on the public. In other words, although trade financing might shrink temporarily due to the Government’s macro-prudential measures, in the long run, these kinds of measures were crucial to promoting the spirit of free trade.  
1.83.  Korea firmly believed that macro-prudential measures must be evaluated based on a cost-
benefit analysis. In this sense, the GATS macro-pr udential carve-out provided enough flexibility to 
undertake ex ante macro-prudential measures. However, the Committee might need to discuss 
more whether the carve-out was providing enough flexibility for ex post macro-prudential 
measures. 
1.84.  The representative of the United States sa id that the goal of macro-prudential supervision 
and regulation was to minimize the risk of financial disruptions which were sufficiently severe as to 
inflict significant damage on the broader economy. In the US, the Dodd-Frank Act of 2010 introduced a macro-prudential approach, whereby traditional supervision and regulation of individual firms and markets was supplemented wi th explicit consideration of threats to the 
stability of the financial system as a whole. The legislation did this by, among other things, 
creating the Financial Stability Oversight Council (FSOC) to coordinate across government agencies to identify and respond to systemic risks. While the existing financial regulators retained their roles 
and authorities in supervising and regulating firms and markets, the FSOC monitored the financial 
system for threats, coordinated financial services policy developments and made recommendations for regulators to address systemic risks.  
1.85.  The Act also authorized the FSOC to requ ire enhanced supervision of non-bank financial 
companies that could pose a threat to financial stability and systemically important financial market utilities. Designated non-bank financial co mpanies might be subject to enhanced prudential 
standards such as tougher capital and liquidity re quirements, the development of resolution plans 
or so-called "living wills", mandatory stress tests, new counterparty credit limits, and risk 
management requirements.  
1.86.  The Act also created the Office of Financial Research, within the Department of the 
Treasury, responsible for improving the quality of financial data available to policy makers, and 
monitoring system-wide risk levels in conducting research to improve financial regulation. This collection and analysis of financial sector data should allow regulators to see more of the financial 
landscape and better equip them to identify systemic risks and emerging threats.  
1.87.  The US routinely applied macro-prudential measures and methods to the analysis of 
significant economic development, whether domestic or foreign. The US also participated actively in international efforts to coordinate macro-prudential policy, including in the Group of 20, the 
FSB, the BCBS, and other international agencies.  
1.88.  International coordination was of the highest importance in order to maintain a competitive 
level playing field across countries, minimize opportunities for multinational firms to engage in 
regulatory arbitrage, establish consistent and complementary standards and effectively supervise 
internationally active markets and firms. The macro-prudential measures taken by the US were non-discriminatory in nature and consistent with its GATS obligations. In the US experience, the 
GATS had not presented a constraint on its ability to adopt macro-prudential measures in order to 
address systemic risks. 
1.89.  The representative of South Africa said that her country had taken a number of steps to 
strengthen the financial sector. These included implementing the reforms of the Basel III 
framework. These reforms were aimed at improvin g bank capital adequacy, implementing effective 
stress testing methods and reducing market liquidity risks. As a consequence, South Africa was on S/FIN/M/76 
 
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  a trajectory towards improving the prudential regu lation of banks; establishing a new risk-based 
solvency regime for short-term insurers; expanding the scope of financial regulation; improving its financial crisis resolution framework; establishing a Financial Stability Oversight Committee and a Council for Financial Regulators; and strengthening the operational independence, integrity and 
accountability of all regulators.  
1.90.  In order to strengthen both prudential an d market supervision, South Africa had decided to 
move toward a "twin-peaks" model of financial regulation. This model recognized the different 
skills required for prudential and market conduct re gulation. While prudential regulation sought to 
ensure the soundness of financial institutions and funds, market conduct regulation required a customer perspective. The South African Reserve Ba nk assumed the role of prudential supervision, 
with an emphasis on macro-prudential regulation, thereby focusing on the risks within the system 
as a whole. A separate market conduct regulator, the Financial Services Bureau, regulated market 
conduct. This Bureau and the National Credit Regulator had extensive powers, covering the full range of retail banking.  
1.91.  The representative of Nigeria said that the high costs imposed by the recent financial crisis 
in many advanced economies showed the importance of establishing an effective macro-prudential 
framework to prevent the build-up of systemic fina ncial risk. Nigeria's macro-prudential policy was 
built on four pillars: enhancing the quality of banks, maintaining financial stability, ensuring 
financial sector resolution, and ensuring that the financial sector contributed to the real economy. The main elements of that policy included a revision  of the structure of the Central Bank of Nigeria 
(CBN), including the establishment of the Macro-prudential Office in the Financial Policy Regulation 
and the Department of the Bank; revised prudential guidelines; new banking models; a focus on 
the real economy and interest rates; a stronger enforcement regime; macro-prudential surveillance and analysis; and closing off other prudential gaps.  
1.92.  The objectives of the new prudential guidelines included the following: to promote 
provisioning policies and practices consistent with sound risk management practices; to ensure that provisioning guidelines reflected gestation peri ods of the various types of loans; and to ensure 
that the provisioning guidelines are countercyc lical. The prudential guidelines set the minimum 
requirements for loan loss provisions for banks. The guidelines, which were first issued in 1990, were amended by the Central Bank in May 2010 in a bid to further encourage lending by banks to 
the real sector of the economy and to promote sound risk management practices by banks. The 
key changes introduced to the guidelines consisted of the following: loan provisioning was 
designed so as to take into account the gestation period and peculiarities of each class of loan; the general provision for loans was restricted to 1.25%  of the risk-weighted assets; collateral could be 
considered in loan provisioning provided it was perfected, realizable and transparently valued; and 
banks must put in place internal ratings, must ca rry out credit ratings for their customers, must 
themselves be credit-rated by an appropriate ra ting agency, and were required to disclose total 
loans by sector. 
1.93.  In Nigeria's view, institutional arrangements should be guided by country-specific 
circumstances. Progress in the establishment of macro-prudential frameworks had been made but 
was uneven across countries.  
1.94.  The Chairperson opened the floor again for any further questions or comments. 
1.95.  The representative of Bolivia said that, following the global financial crisis, countries around 
the world, including the G-20 members, recognized the need to implement macro-prudential 
regulation with a view, in particular, to controlling the operations of multinational financial firms. 
The financial sector needed to be subject to stricter  regulation than other sectors. Financial policies 
in developing countries, including macro-prudential ones, needed to be adapted to the situation 
and needs of each economy. Therefore, it was necessary for developing countries to have 
sufficient policy space to face situations like the recent global financial crisis.  
1.96.  The representative of Nigeria raised the following questions for further discussion, which 
were derived from the challenges faced in implem enting macro-prudential policy: 1) How best to 
apply macro-prudential regulations? 2) How can financial institutions comply with the requirements 
of both micro and macro-prudential regulations? 3)  How can the regulator build confidence in both 
the micro and macro dimensions and build credibility in the eyes of financial institutions? 4) Will S/FIN/M/76 
 
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  the implementation of micro-prudential regulation undermine the independence of the Central 
Bank? 5) Do particular frameworks for financial stability institutions carry advantages in managing systemic risk and adjusting macro-prudential polici es, especially in a volatile environment? 6) How 
should macro-prudential policy be coordinated with monetary and fiscal policies? 7) Which macro-
prudential instruments tend to be more effective in containing systemic risks? 8) Are there useful 
matrixes to measure systemic risk and to assess the effectiveness of prudential tools? 9) Are rules-based macro-prudential policies more effect ive than those applied with discretion? 10) When 
are single instruments more effective and when should a country rely on multiple instruments? 
1.97.  The representative of Ecuador thanked all Members for their interest and participation in 
this discussion. The Committee had an interesting exchange on macro-prudential regulation, 
whereby Members shared their experience with re gard to a broad range of policies and measures, 
thus fulfilling to a large extent one important objective set forth in the original proposal submitted 
by Ecuador.  
1.98.  The Chairperson thanked delegations for their participation in the discussion. Based on the 
presentations, she concluded that the recent glob al financial crisis had prompted a reassessment 
of financial regulation and supervision. In particular, those events showed how important it was to focus on macro-prudential policy as a complement to the hitherto almost exclusive emphasis on a 
micro-prudential approach. The objective of the macro-prudential approach was to look at the 
financial system as a whole. The diversity of expe riences shared by Members showed that no "one-
size-fits-all" model was available for the implementation of macro-prudential policies and regulation. From an institutional point of view, while some Members entrusted their central banks 
with additional responsibilities regarding macro-prudential policy, other Members focused on 
coordination among different agencies, including the central bank. 
1.99.  Many participants had referred to the need to avoid the build up of excessive leverage in the 
banking system. Instruments used were diverse and included, inter alia , strengthened capital 
requirements; countercyclical capital requiremen ts, and liquidity requirements. Some Members 
had made reference to the instability brought abou t by extensive and volatile capital flows and the 
need to apply capital flow management measures.  
1.100.  Some Members had also pointed out that, from their perspective, the GATS had worked 
well in the past, not preventing them from applying necessary macro-prudential measures, regardless of the level of commitments. As some had also said, even though the WTO was not a 
standard-setting organization, it would be important for this Committee to keep abreast of 
developments regarding prudential regulation, so  as to better understand the effects of these 
regulations and policies on trade in financial services. 
1.101.  The Committee took note of the statements made. 
2  ITEM B - TRADE IN FINANC IAL SERVICES AND DEVELOPMENT 
2.1.  The Chairperson said that the discussion s at previous meetings had shown Members' 
willingness to continue exploring the relationship between trade in financial services and 
development, breaking it down into specific aspects. At the last meeting, she suggested a 
Member-driven process, whereby delegations would identify specific topics of interest. Once one or more topics had been identified, the Secretariat wo uld prepare a short Note to inform and support 
discussions. This could be complemented by pres entations by individual Members on their own 
national experiences. 
2.2.  At the last meeting, China had made an intervention describing the availability and 
organization of microcredit in its market. In addition, Canada suggested that Members could share 
their experiences on how financial sector liberalization influenced development. Back in October, Australia had encouraged small developing countries and LDCs to share their experiences with 
foreign financial service suppliers and access to finance. In the Chairperson's view, these 
suggestions for further work seemed to focus on inputs provided by interested Members, and not on a general discussion of a specific topic. That said, she sought Members' views and guidance on 
how to proceed with the suggestions on the table. S/FIN/M/76 
 
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  2.3.  The representative of China, building on hi s intervention at the last meeting, said that he 
would provide Members with additional information on how financial services helped support small 
and medium-sized enterprise (SMEs) in China. As  of end 2011, there were more than 42 million 
SMEs in China, which provided more than 75% of total employment, produced more than one half 
of the total output of the economy, and generated more than half of total tax revenue.  
2.4.  As in many other countries, SMEs played an important role in China's economy. However, 
China's SMEs had long been faced with financing difficulties. SMEs, especially start-ups, did not 
have such advanced management skills as large corporations, and the financial information was 
not easily available, which rendered financial institutions reluctant to lend to SMEs. This was a bottleneck for development. Therefore, in order to step up lending to SMEs, the China Bank Regulatory Commission (CBRC) had adopted a policy of "two no-lower targets", i.e. the growth 
rate of lending to agricultural and small enterpri ses should not be lower than the growth of total 
loans, and not below that of the previous year. In line with this policy, banking institutions had introduced several innovations so as to improve financial services for small and micro businesses. 
She highlighted four such innovations.  
2.5.  The first innovation consisted of enrichin g the organization and management models of the 
special business units (SBUs) that provided exclusive financial services for small and micro 
businesses. The SBUs were important vehicles in exercising the so-called "six mechanisms" 
covering risk pricing, efficient credit approval, in centives, professional staff training and defaults 
information sharing, as well as the so-called "four principles of independence" (i.e. independent credit planning, human and financial resources arrangement, customer credit review, and 
accounting practices). Commercial banks actively set up their SBU sub-centers, and some bank 
sub-branches became de facto SBUs after handing over their large corporate businesses to their head offices. By engaging in local industrial development, the SBUs provided specialized services, 
and a batch of SBUs with distinctive industrial fe atures had come into being. The existing SBUs 
were classified to adopt different marketing strategies and growth targets in light of the regional characteristics, business scale and structure, as well as management capability. Moreover, under 
China's prudent monetary policy, some commercial banks imposed no upper limits on the loan 
volume of the SBUs, and the head offices provid ed adequate financial support to the SBUs, in 
order to deliver sound financial services for small and micro businesses. 
2.6.  Secondly, insufficient collateral was addressed via product innovation. In 2011, commercial 
banks continued to innovate and develop various products, such as domestic prepayment financing 
products, with the aim of financing small and micro businesses in the upstream and downstream of core enterprises. Besides, commercial banks also continued to develop small-value credit products 
which put more emphasis on cash flow analysis and creditworthiness of small and micro 
businesses. In addition, access to financing was made easier for small and micro enterprises through exploring various forms of guarantees and collaterals, including using operating rights and 
depot bills as collaterals, key corporate and joint guarantees, etc.  
2.7.  Thirdly, based on in-depth knowledge  of the business, commercial banks developed 
customized and standardized products, such as industrial cluster loans and equipment mortgage loans. In addition, banks also standardized their business processes and procedures of credit 
investigation, credit approval, loan extension, and post-lending management, which increased 
their operational efficiency and boosted the number of small and micro business customers. 
2.8.  Finally, innovative products were introduc ed in response to capital market developments. 
While providing traditional forms of credit, commercial banks cooperated with investment 
institutions, such as private equity funds, to help finance small and micro enterprises. Furthermore, by means of investment banking services, commercial banks also provided cash 
management, strategic planning and financial consulting services.  
2.9.  As of end-2011, the loans granted to small enterprises met the of "two no-lower targets" for 
three consecutive years. Total lending to small enterprises had reached a record RMB10.8 trillion, accounting for 19.6% of total loans. New loans to small enterprises had grown at a rate of 25.8% 
year-on-year, 10 percentage points higher than the average growth rate of total loans. As of end-
2011, the aggregate loans to small and micro enterprises (i.e. total small enterprise loans plus the loans to individuals' businesses) had amounted to RMB15 trillion, making up 27.3% of total 
lending by the banking sector. S/FIN/M/76 
 
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  2.10.  As no other delegation intervened, the Chairperson informed that suggestions for further 
work or discussion had been made by Australia, Canada and China, but it was not clear to her how 
to proceed on any of them. Therefore, she pr oposed the incoming Chair conduct informal 
consultations with Members with a view to figuring out a suitable work programme under this 
agenda item.  
2.11.  The Committee took note of the statements  made, and decided to revert to this agenda 
item at the next meeting.  
3  ITEM C - TECHNICAL ISSUES (CLASSIFICATION ISSUES) 
3.1.  The Chairperson recalled that, at the previous meeting, the Committee had continued its 
consideration of classification issues. Since discu ssions had not been very substantive, she had not 
prepared a specific summary. However, the main elements were contained in the annotated 
agenda for this meeting.  
3.2.  The Committee turned to informal mode to continue the discussion. 3.3.  After the discussion, the Committee decided to revert to this agenda item at the next 
meeting. 
4  ITEM D - RECENT DEVELOPMENTS  IN FINANCIAL SERVICES TRADE 
4.1.  The Chairperson recalled that it was under this agenda item that the proposal by Ecuador had 
been considered and the decision taken to have a discussion on Members' experiences with macro-
prudential policy and regulation. As a standing  item of the agenda, Recent Developments in 
Financial Services Trade had already been used on other occasions to introduce proposals that had led to specific dedicated discussions (for example on  the impact of technology on the regulation of 
financials services) or seminars (such as the one on non-life insurance services held a couple of 
years ago), or to make presentations about recent  developments in individual Members' markets. 
Having said that, she encouraged Members to conti nue making further use of this agenda item in 
the future.  
4.2.  The Chairperson indicated that she would leave it to her successor to develop ideas on how 
to further advance under this agenda item. 
4.3.  The Committee took note of that statement an d decided to revert to this agenda item at the 
next meeting.  
5  ITEM E - ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON 
TRADE IN SERVICES EMBODYING THE RESULTS OF THE FINANCIAL SERVICES 
NEGOTIATIONS 
5.1.  The Chairperson recalled that Brazil was the only Member that had yet to accept the Fifth 
Protocol. 
5.2.  The representative of Brazil said that it was difficult to foresee when the domestic procedures 
for the acceptance of the Protocol would be completed. He endeavoured to keep the Committee 
abreast of any developments in that regard. 
5.3.  The Committee took note of those statements and decided to revert to this agenda item at its 
next meeting. 
6  ITEM F - OTHER BUSINESS 6.1.  The Chairperson proposed that the Committee discuss the section on financial regulation 
contained in the Secretariat Note on Regulatory Issues in Sectors and Modes of Supply, prepared 
for the WPDR (S/WPDR/W/48).  This would follow the precedent of the Background Note on Financial Services (S/FIN/W/73 and Add.1), which had been discussed both at the Committee and 
at the Council for Trade in Services, and take into account discussions at the Working Party on S/FIN/M/76 
 
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  Domestic Regulation (WPDR). The topic would be added to the Committee's agenda for the next 
meeting. 
7  ITEM G - APPOINTMENT OF THE NEW CHAIRPERSON FOR THE COMMITTEE 
7.1.  The Committee elected Mr Wamkele Mene, from South Africa, as its new Chairperson.  
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