Cross-border tie-ups like the Deutsche Bank-Bankers' Trust merger have been relatively few. Even in Europe, with economic integration far advanced, hurdles to cross-border consolidation are high. In Asia, the process of consolidation has barely begun even within the same country, much less internationally. The public, regulators and governments are generally wary of encroachment by foreign banks on their domestic turf. Some of their reservations may be protectionist and nationalist. But countries do have genuine concerns, ranging from financial stability to issues of macroeconomic management and customer protection. These will have to be addressed if the banks are to be allowed to pursue mergers and consolidation in accordance with economic logic. In Singapore, we have responded to the international consolidation not by trying to shut out foreign players, nor by a totally laissez faire approach, but by a phased liberalisation of our banking sector. We have opened it to greater foreign competition, while simultaneously pushing the local banks to strengthen and upgrade themselves. The stronger local banks have concluded that they need to develop into significant regional players, in order to diversify their earnings and exploit new growth opportunities. A few have taken the first steps in this direction. Not all their ventures have been successful. But mistakes are the price of experience, and the banks must learn from them, rather than abandon the effort to grow abroad. We have also encouraged the local banks to consolidate among themselves. The domestic market is too small to sustain five local banks of adequate size to compete regionally.

It demolished any argument that disparities in credit processes and banking regulations across countries reflected differences in cultural and social norms, and that therefore harmonising regulations was misguided and futile. Everybody now acknowledges that the core principles of sound banking practices and banking regulation are universal. There should be due diligence in credit decisions. A banker should not lend unless he is highly confident that the loan will be repaid. The factors that affect the probability of default will differ across countries. But regardless of the country in which the bank operates, lending based on relationships or names without proper due diligence is simply unsound banking. More needs to be done to improve regulatory cooperation and harmonisation, to achieve the vision of "One Financial World". There are two elements of improvement. The first is a clearer distribution of responsibilities among regulators for prudential oversight of international financial institutions. The Basle Concordat lays out the allocation of responsibilities between parent and host supervisory authorities for banking institutions. But with the advent of the internet, and more generally globalised banking, it has become harder to pinpoint exactly where financial transactions are being carried out, and which supervisor has responsibility over them. In this environment, supervisors need to cooperate more closely with each other to ensure effective consolidated supervision of the institutions under their charge. The second element of improvement is the harmonisation of practices and standards across jurisdictions.