Koh Yong Guan: Regulatory approaches in global capital markets Keynote address by Mr Koh Yong Guan, Managing Director of the Monetary Authority of Singapore, at the MAS Capital Markets Seminar 2002, Singapore, 2 May 2002. *  *  *  MAS Capital Markets Seminar Ladies and Gentlemen Good morning and a warm welcome to the MAS Capital Markets Seminar. For participants from abroad, I wish you a pleasant and rewarding time in Singapore. We have chosen “Evolving Regulatory Approaches” as the theme to underscore the importance for regulators to keep pace with developments in the global capital markets. Advances in technology have enabled instantaneous and seamless access into diverse capital markets. At the same time, consolidation of specialist financial institutions into financial conglomerates with cross-border presence has redefined traditional notions of market boundaries. The consequent growth in cross-border transactions poses regulatory challenges to national regulators supervising global market players. As we have seen in recent months, a single event in one market can create significant ripple effects elsewhere. These developments have not been lost on regulators. Having no less than 12 countries represented here today bears testimony to the importance attached to learning from fellow regulators. One key reason for organising the capital market seminar is to facilitate the exchange of views and sharing of ideas. The occasion also provides an opportunity for regulators to get to know one another better.

However, as the ECB points out in its study, there is another aspect to consider in banking consolidation alongside potential cost cuts: the improvement in geographical diversification, from the standpoint both of revenue and of risks borne. I fully share the conclusion of the study. It is true that cross-border mergers offer the advantage of increasing diversification. That no doubt improves resilience at times of stress and shores up revenue in terms of greater stability and recurrence, as was highlighted during the past crisis. In this respect, I believe that the lack of explicit acknowledgement of diversification as a risk-reducing factor may be restricting this type of cross-border integration. Some profound reflection across Europe and internationally may be advisable on the regulatory treatment of diversification, and its potentially beneficial effect on banks’ risk profile. In any event, it should be stressed that mergers are always long and complex processes and, on many occasions, they entail more problems than those initially envisaged. Also, national barriers persist that hamper mergers of banks from different jurisdictions. Persistence of national barriers. Admittedly, despite progress, specific cultural, institutional and regulatory obstacles persist that hamper the creation of a truly European banking market. Reluctance to eliminate these obstacles contributes notably to the ring-fencing of national banks, which restrict or even prevent the free movement of capital or liquidity across the different euro area jurisdictions. In my view, after significantly reducing risks in the financial sector, it is time to do away with national supervisory barriers.