While the crisis has clearly had global ramifications, its impact on financial systems has not been uniform across the world. Financial structures differ greatly between countries and there needs to be scope for different countries to tailor solutions to their circumstances and structures, while, at the same time, doing so within a globally agreed framework. For instance, our experience in France is that our banks’ universal model has weathered the storm relatively well. It would be a major paradox to put in place rules that would challenge such models. Finally, any regulatory framework needs to manage regulatory arbitrage and keep up with innovation and other forms of structural changes. For this, a necessary but not sufficient condition is that standards be comprehensive in coverage and consistent across jurisdictions. I am not sure, for instance, that the leverage ratio, if it were to be implemented as a compulsory instrument, would meet this double test. Given existing accounting divergences, consistency will be very difficult to achieve. Furthermore, it is likely to encourage migration of credit activities towards other – less regulated – parts of the financial system. Convergence between accounting standards is a precondition for a consistent implementation of some of the prudential reforms discussed by the Basel Committee. It is also essential that new prudential standards for banks become truly universal. We should not underestimate the difficulties on the road to accounting and regulatory convergence. 2  BIS Review 57/2010  How can we reduce the procyclicality of financial systems?

The recent enactment of the Payment Systems Act 2003 is also a testimony to the Bank’s commitment for greater payment system oversight, and to provide legal certainty to the finality of payment instructions carried out through major payment systems. Social responsibility of banking institutions Sustaining growth in emerging economies requires stability to be preserved in the macroeconomic environment, the financial system and markets as well as social environment. The responsibility of achieving social stability and development should no longer be the exclusive domain of the government. The focus on short-term returns should not be at the expense of long-term sustainability. It is increasingly being advocated that corporate social responsibility is an important part of the business environment. Corporate social responsibility refers to operating business in a manner will also contribute to economic development while improving the quality of life of the workforce and local community and society at large. The banking institutions, being the main provider of financing in the economy, need to assume a much greater role in contributing towards the long-term development of the small and medium-sized enterprises (SMEs). In developing the SME industry into strong and resilient enterprises, banking institutions need to reassess their relationships with the SMEs as financing alone will not guarantee the long-term success of the SMEs. The traditional relationship between creditor and debtor has to evolve into a business partnership whereby banking institutions are expected to play a more participative role in identifying gaps in processes, skills and expertise as well as usage of technology.