The test of resilience of a bank or a system lies in its ability to absorb losses when a shock occurs – that is, its loss absorption capacity. For an individual bank, various tools, apart from surcharges or levies, should be considered. At the system level, adopting similar rules across institutions to prevent regulatory arbitrage should not inadvertently reduce the diversity in the global financial system. A variety of business models and investors with different risk appetites and liability-matching requirements may make for a more resilient system. 18. In the same vein, national regulators should explore a variety of approaches that are best suited to their conditions. Indeed, many emerging economies have banks that are systemic only in their local context, and national regulators need to consider how best to deal with these, even as we work together on global banks of systemic significance. 19. Third, post financial crisis, there is an understandable distrust of markets and supervisory judgment, and a preference to “hard-wire” most measures under Pillar 1 on capital. But we must not swing too far. Supervisors need to regain confidence and be prepared to exercise supervisory judgment – many economies have used macroprudential tools with some success by applying discretion. There is also scope for greater disclosure and market discipline under Pillar 3. Indeed, in the proposals relating to contingent capital – whether convertible bonds or bail-in arrangements, an understanding of the market dynamics relating to these instruments is crucial to their success. 20. Fourth, a sophisticated approach is not necessarily superior.

The need for talent is particularly acute for supervisors in emerging economies, as the banking system grows rapidly. With the growing demand for risk managers, some supervisors are facing higher attrition. We have to significantly expand the talent pool, and work with international and regional bodies like the FSI, the World Bank and IMF to step up our efforts. 25. Finally, supervisors should not be acting alone in achieving the desired regulatory outcomes. Good outcomes cannot depend on a “cat-and-mouse” game of supervisors prescribing rules and then checking for compliance. The primary responsibility of having a sound bank must rest with the Board and senior management of the bank. They need to take ownership of and responsibility for managing risks, and to have the requisite knowledge, skills and experience to discharge their responsibilities effectively. 26. In this regard, MAS recently proposed a number of enhancements to the corporate governance framework for locally incorporated banks. We welcome the Basel Committee’s present initiative to revisit its 2006 corporate governance guidance, and to address weaknesses identified during the crisis. 27. In promoting shared outcomes, political support is crucial in various areas. It is difficult to build a strong banking system on weak macro-economic foundations. Supervisors in all countries, but more so in emerging economies, are sometimes under political pressure to tilt credit growth in certain directions, or to exercise forbearance. While the financial system has to be responsive to the needs of the economy, a politicised supervisory process will almost certainly bring adverse consequences down the road. Conclusion 28.