I have also noted that the creation of the ministerial level G20 was an attempt to reach beyond the narrow locus of the G7 to involve key emerging markets in global financial sector developments. For their part, the international financial institutions have also recognised that an exclusively Beltway, or “Euro-centric” view is not in their long-term interests. The IMF has established a Tokyo office while the Basel-based Bank for International Settlements has added outposts in Hong Kong and Mexico. BIS Review 25/2003  5  But at the level of the regulatory standard setting bodies, the picture is very uneven. In IOSCO, the securities regulators trade union, the key Technical Committee includes Hong Kong and Mexico. It also includes Australia, which we British think is still a developing country, even if the Australians don’t! And it includes the chairman of the Emerging Markets Committee of IOSCO who, as I noted above, also participates in the FSF. The Executive Committee, to which the Technical Committee reports has an even broader membership including, for example, the People’s Republic of China. The IAIS, the insurance supervisors organisation, does not currently limit participation in its Technical Committee, which – as in IOSCO – has overall responsibility for standard setting. A number of emerging markets are active participants in the Technical Committee in addition to contributing to the work of the separate Emerging Markets Committee. However, their involvement in the “nuts and bolts” work of standard development in a variety of subcommittees is clearly limited by resource constraints.

2  BIS Review 25/2003  What is the rationale for this activity, which is now consuming a significant proportion of the Fund’s resources? The Asian crisis demonstrated that poorly regulated financial systems, particularly banking systems, could themselves be a cause of crisis, even where the macro-economic position might look relatively stable. In the case of countries like Indonesia, Korea and Thailand it became clear after the event that their banks were heavily exposed to currency risk through unhedged dollar borrowings. Furthermore, that the regulators in those countries had paid little attention to this mismatch, and indeed little attention to credit quality. In many cases banks were far too close to the companies to which they lent. There had been a rapid expansion of connected lending and little policing of large exposures, so banks were highly vulnerable to individual corporate collapses. That, in turn, precipitated the crisis in the banking system which turned an economic adjustment into a full blown systemic collapse. Certainly, it will take some time for this IMF assessment programme to bear fruit and it will be crucial to turn initial assessments into effective long-term mitigation and implementation strategies. This will require both political commitment and, where appropriate, technical assistance. But there are signs that more developing countries now appreciate the importance of independent systems of financial regulation, and that the Finance Minister’s best friend may not necessarily be the right choice as head of banking supervision, particularly not if his family owns a large slice of the banking system.