While it might be sensible for an individual firm to diversify its business lines to reduce its risk, if this same strategy is followed by all banks the end-result may be greater fragility across the whole system. Why? Because in their desire to look different than in the past, banks’ business strategies may end up looking identical in the present. The financial system could then become more prone to herdlike upswings and lemming-like downswings. There is more than a hint of this behaviour during the run-up to crisis. Banking strategies became a whirligig. Building societies transformed themselves into commercial banks. Commercial banks tried their hand at investment banking. Investment banks developed inhouse hedge funds through large proprietary trading desks. Hedge funds competed with traditional investment funds. And to complete the circle, these investment funds imported the risk all of the others were shedding. In their desire to diversify, individual banks generated a lack of diversity, and thus resilience, for the financial system as a whole. BIS Review 108/2009  7  So recent crisis experience highlights some of the costs of bundling banking services. Given that, there is an intellectually defensible case for some unbundling of these services. This would reduce the risks of spill-over between privately and socially beneficial banking activities. And it would help prevent banks making individually rational but collectively calamitous strategic choices. There are plenty of examples from the non-financial world, from genetics to geology, of diversity improving the robustness of systems. The financial system may be no different.

In 2009, Bank Negara Malaysia entered into a Currency Swap Agreement (CSA) with the People’s Bank of China, which was renewed in 2012 with an expanded amount of RMB180 billion, with the objective to ensure a ready supply of renminbi in the domestic financial markets to meet the demand by businesses. Efforts were also made to enhance the transparency in the exchange rate between renminbi and ringgit transactions. In 2010, a direct market quote of renminbi against the ringgit was initiated in the Kuala Lumpur interbank market as well as in the interbank foreign exchange market on the China Foreign Exchange Trade System (CFETS). With these developments there is now a direct renminbi/ringgit quotation in the spot market and a renminbi/ringgit forward exchange rate for the Malaysian market. To further facilitate transactions, the real time gross settlement (RTGS) payment system in Malaysia has also been expanded since 2012 to include settlement services in renminbi. The size of renminbi trade settlement in Malaysia is expanding progressively reflecting the shift among both Malaysian and Chinese companies across the commodity, manufacturing and services sectors. There are also now 19 financial institutions that facilitate renminbi trade  BIS central bankers’ speeches  1  settlement, double the number in 2009. There is also a growing interest in raising financing in renminbi in the Malaysian bond market. In 2011, Khazanah Nasional Berhad successfully issued the world’s first offshore renminbi sukuk in 2011 and subsequently Axiata Group Berhad issued the world’s first rated renminbi sukuk in 2012.