While it is still premature to draw firm conclusions, based on the experience in Latin America and early indications from Asia, I believe that, on the whole, policy responses have been meaningful and have  BIS Review 64/1998  -4-  strengthened domestic safety and soundness considerably. Let me briefly review the new, post-crisis, financial landscape in Latin America. Crises have left perhaps their greatest imprint on domestic financial system structure. Financial systems have generally experienced significant consolidation - leading to a less fragmented banking market - as weaker and more marginal players have been forced to exit. Foreign capital now accounts for a noteworthy share of banking assets across a number of countries, bringing additional financial strength and know-how. Many governments have sought to reduce their direct role in the financial system through the privatization of state banks, although this will likely remain a longerterm policy objective for many countries. Authorities also have made tremendous strides in improving system infrastructure. Disclosure standards have been greatly improved, and in some Latin American countries, disclosure standards are now comparable to that of G-10 countries. Recognizing the greater historical volatility in emerging market economies, minimum capital requirements have also been raised to levels above Basle minima, and now incorporate additional sources of risk, such as market risk. Financial supervision and regulation has been improved, with additional resources dedicated to the hiring and training of examinations staff and to investments by regulators in information technology.

Previous work by the Committee, embodied in a March 1996 report, recognized that settlement risk depends not only on the payments system infrastructure, but also on the way market participants use this infrastructure and manage their internal processes. A follow-up report was issued one week ago that applauded the progress made, while noting that there were further opportunities for private sector initiatives in reducing settlement risk. The central banks, of course, are ready to work closely with the private sector in achieving this goal. Closing Preventing future banking crises poses difficult issues for policymakers. Given the indispensable role that banks play in a nation’s economic well-being, all governments have found it important that financial institutions be subject to regulation or oversight. It is important to understand from the start, however, that there are limits to the supervisory process. Supervisors have limited ability, for example, to detect fraud. Most important, in a market-oriented banking system, bank directors and management must have the ability to set the bank’s overall course, to seek a BIS Review 64/1998  -6-  reasonable profit, and to innovate and experiment with new banking activities and products. In other words, supervision can not be so heavy-handed as to stifle competition and innovation. As such, the supervisory process has an inherent tension between the freedom banks need in order to earn reasonable profits and the latitude to take such large risks that their future could be endangered.