With hindsight, information generation and processing was too reliant on a limited number of rating agencies, and there was too much confidence in the ability of individual rating agencies to solve the highly complex information problems underlying some securities. 22 Third, it is very hard to determine counterparty credit risk for state-contingent securities. In a world of full information, the state-contingent survival of counterparties would be known and nobody would accept contracts from those who could not honour them – at least not without a substantial price discount by way of compensation. But when investors cannot know the full network of exposures in the financial system, it is extremely hard to estimate  6  BIS Review 93/2008  where the ultimate incidence of losses from an extreme shock will occur. The failure of your counterparties’ counterparty can shift you up the queue of potential losers quite quickly. Moreover, the fear of potential counterparty risk itself quickly affects the behaviour of individual firms and thus leads to a collective lowering of risk appetite. 23 These problems are potentially the most acute for what might be called tail-risk products. During the boom, tail-risk products, like deeply out of the money options, seemed an easy way to make money. The protection seller could collect a steady stream of premia with the extremely unlikely prospect of having to make a very large payment. Since these sorts of contracts offer “deep” insurance, it is important to the system as a whole that they are held by the most robust institutions.

It has been described as the world’s first set of professional standards written for private banks by private banks. I am pleased that the group which formulated the Code has now organised itself as the Private Banking Industry Group, or “PBIG”. Besides overseeing the implementation of the Code, the PBIG will look at initiatives to grow the private banking industry in a sustainable manner and to enhance Singapore’s reputation as international responsible wealth management centre. It is co-chaired by the Chairman of Citi Private Bank Deepak Sharma and MAS Assistant Managing Director, Ng Nam Sin, signifying an industry-MAS collaborative effort. Another laudable example of industry-MAS collaboration is the Governance and Compliance Standing Committee under the Association of Banks in Singapore (ABS). This Committee has been working closely with the industry and MAS to promote compliance with AML/CFT measures. They have organised seminars to raise awareness, conducted training programmes, and issued industry guidelines to level up AML/CFT standards. Conclusion Let me sum up. First, competence. The wealth management industry is growing rapidly amidst a tight labour market. Standards must not slip. We must maintain strong competencies. Let us commit to all new entrants to the industry going through the requisite industry certification before admission. Next, trust. The global financial crisis has given the financial industry a bad name. This need not be the case. We must bring back to the centre of finance the notion of ethics – doing the right thing for customers, dealing fairly, and acting with integrity at all times.