Here in Asia, as in other markets, more work needs to be done to improve the quality of disclosures regarding traditional banking activities. Time and again experience has shown that in periods of stress, insufficient or inaccurate information about asset quality can lead to rumors and overreactions in the marketplace, creating the potential for problems to spread to institutions that may otherwise be in good health. Of course, progress on the disclosure front will be limited until accounting standards are enhanced to ensure proper valuation and to reflect innovations over the past decade, both in terms of new products and modern risk management techniques. Accounting systems serve a variety of purposes, but none more important than helping creditors make rigorous decisions as to which enterprises meet market tests of efficiency, competitiveness, and profitability that are necessary for those enterprises to fulfill their obligations. Sound accounting systems also enable investors to determine the value of enterprises, and, in so doing, assist in attracting capital, both foreign and domestic. With these important purposes in mind, ongoing efforts to enhance accounting standards worldwide should continue and even intensify. There is also a need for greater harmonization of accounting standards across countries. We simply must get to a point where supervisors and market participants alike can analyze and compare all internationally active financial institutions on a consistent basis. And it will not be possible to have uniform capital standards until we have achieved some consistency in accounting standards across countries.

In implementing this agenda, we should always keep in mind the fundamental objective - preserving financial stability so that banks and the broader financial system can effectively perform their critical functions in a market economy. There is no question that the more effectively a banking and financial system operates, the more likely the economy is to flourish and the citizens of that society to prosper. This is particularly true in many emerging market economies that have a relative scarcity of savings in relation to their large-scale investment needs. The banking sector in emerging market economies also tends to be more concentrated and represents a larger share of the domestic financial system, suggesting that, if problems occur, they are likely to have an amplified effect on the real economy and on the fiscal cost associated with bank rescue and resolution costs. In pursuing the objective of financial stability, we must also acknowledge that both the public and private sectors have a critical role to play. While the perspectives of market participants and official supervisors may differ from time to time, our objective is the same - to maintain a strong and vibrant financial system over the long term. Indeed, it is clearly evident to me, as a former commercial banker and now as a supervisor, that only if we work together, each meeting our responsibilities and reinforcing the other, will we be able to successfully manage and supervise a rapidly evolving, ever-more complex financial services industry. 9  BIS Review 27/2000