Muhammad bin Ibrahim: The lessons of managing risks during the global financial crisis – the Malaysian banks’ experience Opening remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at the Asian Institute of Finance (AIF) and Institut Bank-Bank Malaysia (IBBM) Risk Roundtable Forum 2010, Kuala Lumpur, 12 October 2010. *  *  *  My opening remarks will consist of three parts. Part I, I will make comments on global financial reform and regulatory priorities. Part II, I will share some regulatory initiative embarked upon by BNM. Part III, I will conclude by giving you an assessment of the banking industry during the recent financial crisis and why it had remained resilient. Global financial reform and regulatory priorities The global financial reform initiative to strengthen the financial sector is consistent with our priorities to enhance prudential regulation and supervisory framework in Malaysia. Efforts to further improve risk management and corporate governance, strengthening the role of supervisors in the oversight of financial institutions and improve market discipline are not new to Malaysia. We have been doing this well before the global financial crisis and these initiatives will continue into the future. For example stress testing on banking institutions was introduced many years ago. In carrying out our regulatory responsibility, we will continue to ensure an effective balance between maintaining prescriptive rules and allowing some degree of flexibility under a more principle-based approach to regulation. Our principled based approach to regulation will be supported by effective supervisory oversight.

Therefore, we do not foresee a significant shift in our current approach to regulation following the proposed global financial reforms. In fact, this reinforces our thinking that the approach we are taking is appropriate for our system. Bank Negara Malaysia has been engaging the banking industry to better understand the impact that the proposed reforms have on Malaysia’s economy and financial system. This will allow us to develop implementation strategies for Malaysia after taking into account specific characteristics of the domestic financial system, including compensating tools and arrangements within the financial system that mitigate risks to financial stability. An important point to consider is that, the implementation process does not result in any unintended consequences. This is where engagement with the banking industry is of utmost importance. We used inputs from the industry and share the inputs at regional and international-level regulatory fora, thus providing an emerging market perspective to the recommended proposals. Malaysian financial reform, regulatory framework and conduct of supervisors Some key regulatory initiatives by Bank Negara Malaysia to further enhance its prudential regulatory framework and conduct of supervision moving forward.   First, to strengthen financial sector legislation through the modernisation and consolidation of existing regulatory/oversight laws under Bank Negara Malaysia’s purview. The enhanced legislation ensures that Bank Negara Malaysia is entrusted with the necessary mandate and power to maintain financial stability and to conduct effective supervision of financial institutions.