Albeit many people today acknowledge that the traditional kind of regulations do not produce the desired results, we tend to keep them too long. Let me give you an example. In Sweden, we had foreign exchange controls in place until 1989. Even though it was obvious that the controls were easy to circumvent and quite inefficient, the authorities were worried by what might happen if they were 1  BIS Review 66/2000  abolished. Perhaps there would be a huge capital drain? Hundreds of pages were written in attempts to map the consequences, but no comfort was provided this way. Eventually the central bank decided to go ahead in spite of the remaining uncertainty. To some surprise and some disappointment, nothing particular happened in the market. The move had been anticipated and the controls inefficient enough to allow the capital flows to adjust prior to the move. Credit controls and interest rate regulation had been abolished in Sweden four years earlier, in 1985, again probably far too late. Some people argue that the banking crisis we had in the early nineties might have been much less severe if the banking system had been forced into a competitive environment by deregulation a decade earlier. Keeping regulations too long is a danger, getting rid of them too quickly is another. This may sound peculiar, but let me again give you an illustration. When, in 1985, credit controls were abolished in Sweden, they had been in operation for more than forty years.

The increasing blurring of boundaries between different financial activities and the building up of large financial conglomerates make consolidated supervision crucial. Consolidation includes financial as well as non-financial entities within a country, but also world-wide. The cooperation and exchange of information between supervisors for different financial activities (banking, securities trading and insurance) is important, domestically as well as globally. Informal or formal agreements must be concluded to facilitate such cooperation. Supervisors should not license banks, or their affiliates, if their organisational structures prevent effective supervision. In the same vein, home supervisors should not allow their banks to establish affiliates abroad, if the host authorities are not willing to exchange important information regarding developments affecting this affiliate. Transparency is key. Banks should be induced, by force and voluntarily, to properly disclose information of their activities to the general public. Information must also be timely, relevant and accurate. In this way, there is daily “supervision” of the bank by market analysts, depositors and others. It is understood that some bank activities are to be considered as strategic secrets which cannot be divulged, but in my view these are fewer than we tend to think. Hence, a related subject of great importance is the issue of accounting. To create transparency, accounting rules, including valuation rules, must provide a clear picture and reflect the true situation of a bank. Let me give you an example. A lingering problem in many countries is that banks hold large amounts of non-performing loans to companies, even those that are state-owned or formerly state-owned.