(Carosio) Although it is possible, he says, to reach an agreement on some of these proposals, in particular on resolution mechanisms, others (e.g. breaking up institutions according to some criterion) would require a broad international political consensus, which seems unlikely at this stage. The second approach would be directed toward seeking additional capital requirement, or a tax, according to the measure for systemic relevance. Taxation seems, according to Carosio, more adequate in a burden-sharing perspective. “The solution, in my judgment”, says Greenspan “that has at least a reasonable chance of reversing the extraordinarily large ‘moral hazard’ that has arisen over the past year is to require banks and possibly all financial intermediaries to hold contingent capital bonds, that is, debt which is automatically converted to equity when equity capital falls below a certain threshold”. “However, should contingent capital bonds prove insufficient, we should allow large institutions to fail, and if assessed by regulators as too interconnected to liquidate quickly, be taken into a special bankruptcy facility”. So, he supports the second approach, and in that light is the latest legislation in the USA which is about to be adopted, as well as the proposals in Europe which envisage measures of this kind. Namely, “Restoring American Financial Stability Act”, which was passed in the US Senate on May 20, would impose significant new obligations and restrictions for the SIFIs, envisaging a possibility for the FED to introduce rising strict rules for capital, leverage and liquidity.

The Singapore dollar has been included as one of eight settlement currencies in the Continuous Linked Settlement (CLS) system - a global initiative aimed at eliminating foreign exchange settlement risk arising from time zone differences. Going forward, the outlook for the other segments of the financial sector has improved. The stock market has rebounded with daily transactions nearly tripling in Q2, compared to Q1. With the expected pick-up in domestic and regional economic activity in H2 2003, we are also likely to see further improvement in commercial banking. The financial sector is expected to post a small positive growth this year, following the 4.8 per cent contraction in 2002. BIS Review 33/2003  1  Enhancing supervisory framework for sound financial sector On the supervisory and regulatory front, MAS continued its efforts to move away from a prescriptive, rule-based approach to a more flexible, risk-based approach. This entailed strengthening risk-based and disclosure-based regulatory frameworks, enhancing corporate governance standards to foster better risk management on the part of institutions, and empowering consumers to make better informed investment decisions. Let me touch on key initiatives in each of these areas. An important step towards a disclosure-based regime was the full implementation last year of the Securities and Futures Act and Financial Advisers Act. MAS will continue to refine the regulatory framework for capital markets, taking into account industry feedback. In the area of risk-based supervision, we implemented last year the new Liquidity Supervision Framework for banks.