Zeti Akhtar Aziz: Comparing financial crises
Special address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Tun
Ismail Ali Chair in Monetary and Financial Economies: Lecture on Comparison of the
Financial Crises: "Japan and Asia in 1997-1998 vs. US 2008-2009", Kuala Lumpur, 10 July
2009.
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This year Bank Negara Malaysia celebrates 50 years of Central Banking. While a number of
special events are taking place during the course of this year, perhaps the most significant
one has taken place yesterday. It is most meaningful that I inform you on this occasion of the
Public Lecture organised in honour of the first Malaysian Governor of Bank Negara Malaysia,
Tun Ismail Mohamed Ali that yesterday the new Central Banking Act for Bank Negara
Malaysia was passed by the Parliament. This new Act represents the culmination of more
than two years' work to address many of the issues and challenges that are confronting
Central Banks in the 21st century. The Act provides greater clarity of the mandate for which
the Central Bank is accountable for, ensures adequate powers to undertake these mandates,
and ensures autonomy in achieving these mandates thus providing for the integrity and
credibility of the decisions made by the Bank. This is further reinforced by legislating the
checks and balances in the Bank and a higher level of transparency to the Government, the
legislature, the market and the public. Most importantly, this Act also addresses financial
stability issues that have surfaced in this current international financial crisis.
It is my great pleasure to welcome you to the 2009 Tun Ismail Ali Public Lecture. This Public
Lecture is now organised in conjunction with the Tun Ismail Ali Chair in Monetary and
Financial Economics at the University of Malaya that was established by Bank Negara
Malaysia in August of 2000 in honour of the late Tun Ismail Mohamed Ali. It is our hope that
this Chair will contribute towards the advancement of knowledge in the area of monetary and
financial economics.
This Public Lecture takes place at a time of a financial crisis that is continues to unfold in the
advanced economies and that now is having unprecedented consequences on the global
economy. For some parts of the world, such as Asia , the financial sector has largely not
been affected, but the impact has been on the real sector, following the massive contraction
in world trade. While this crisis started in early 2007, Malaysia has seen the full impact of this
crisis on our economy in the first half of this year.
Today, we are very privileged to have with us Professor Dr. Takatoshi Ito, professor at the
University of Tokyo and this year's holder of the Tun Ismail Ali Chair, to speak to us on the
"Comparison of the Financial Crises: Japan and Asia in 1997-1998 vs. US 2008-2009".
The subject of this lecture is important as a greater understanding of the origins, the
dynamics of financial crisis and the options for resolution is essential not only for its effective
management but also for the lessons that can be drawn to prevent such future crisis. Given
the severity and far reaching consequences of the current crisis, there has been a greater
sense of urgency for the international community to come together to work towards a new
international financial architecture that would allow for the more efficient functioning of not
only financial intermediation within national economies but also across borders.
History has shown that there have been more than 100 distinct banking crises within the
span of the recent two decades. While the trigger factors for such financial crisis may be
different, for most it involved disruptions in the financial intermediation process, the
downward spiral of asset prices and a general loss in confidence. Varying responses at
different stages of the crisis have shown wide ranging degrees of success. The objective to
be achieved is the restoration of stability in the financial markets, the resumption of credit
flows and the return of confidence. This would provide the beginning of the recovery of
economic activity.
Malaysia 's own experience in managing the financial crisis in our part of the world over
1997-1998 was that a decisive and comprehensive response at an early stage of the crisis
not only produced an early recovery but it also reduced the cost of the crisis on the financial
system and the economy. The crisis was a defining moment for Bank Negara Malaysia . The
Bank's efforts to sustain stability did not end when the Asian financial crisis abated, and
when economic recovery was firmly in place. The key lesson was that foundations for
resilience are built during the good times.
Once stability was restored, the Bank therefore embarked on a comprehensive restructuring
and reform of the financial sector. This included the aggressive development of the domestic
financial markets and the strengthening of the regulatory and supervisory oversight. This has
been reinforced by a higher level of regional cooperation and collaboration. Therefore, it is
not what we are currently doing to cope with this international financial crisis but the efforts
that have been undertaken over several years that have ensured the resilience of our
financial system during these most challenging of times.
Over the course of these recent months, we have witnessed the introduction of massive
fiscal stimulus packages, sweeping proposals for regulatory reforms and various unorthodox
policy measures being introduced to stabilise and restore market confidence in the financial
system. Whilst these measures were necessary and have contributed towards some
stabilisation in global financial markets, more importantly is the long-term sustainability of this
trend. With the urgency for immediate measures receding, it is hoped that it will give way to
consensus on finding fundamental solutions that involve regulatory and institutional reforms
both at the national and international levels.
Conclusion
Today, we have the opportunity to listen to Professor Ito's lecture on the similarities and
differences between the Asian Financial Crisis and the Japanese crisis of 1997-1998, and
the US financial crisis of 2008-2009 and the valuable lessons that can be drawn in a global
environment that is more complex and interconnected. Professor Ito has written extensively
on financial policy and has been a policy advisor to the Government of Japan. We look
forward to benefiting from your experience and wisdom on this subject.