guy quaden : modernising imf surveillance intervention by mr guy quaden, governor of the national bank of belgium, at the international monetary fund – monetary authority of singapore ( imf – mas ) conference “ the imf and the international financial system : the post crisis agenda ”, singapore, 24 september 2010. * * * first of all, i would like to thank the monetary authority of singapore and the imf for inviting me to contribute to this high - level conference. the world economy has changed in important ways. capital flows now dwarf trade flows. many economies are now integrated into world capital markets. financial sectors have become more interconnected and a channel for rapid transmission of crises across regions and at a global level. this requires fund surveillance ( in other words its crisis prevention role ) to adapt both in substance ( what surveillance should do ) and modalities ( how to do it ). i would like to focus on three major topics : 1. the analysis of financial sector stability must be strengthened both at global and country level ; 2. bilateral surveillance must be complemented with multilateral surveillance ; 3. the so - called traction of fund surveillance – the ability and willingness of countries to heed fund advise – must be improved. let me elaborate. financial sector stability issues the international community has drawn many important lessons from the recent financial crisis. implementing the needed changes has only just begun. the basel iii agreement, reached only recently, is a major step to make the banking sector more stable and better equipped to absorb losses. it is only a first step. improving capital adequacy primarily focuses on the stability of individual banks. it is foremost an instrument of micro - prudential regulation. compliance of individual banks with prudential regulations does not assure the stability of the system as a whole. macro - financial stability concerns must be kept under constant review and addressed by national institutions – the central banks – with a clear mandate. in the european union, the european systemic risk board will be established next year and assume an important role at eu - wide - level. however, the implementation of its recommendations will remain largely the responsibility of national authorities. i see an evident parallelism and potential for synergy between the surveillance mandate of the esrb and imf surveillance, the latter remaining broader in scope. after a series of national and regional crises ( mexico, asia, russia,... ) the imf board adopted in 2000 a financial sector assessment program. the fund would at regular intervals

implementation of the basel rules as well as on the rigorous application of the new rules. this latter point was actually an important precondition for our approval of the agreement. 3 / 5 bis central bankers'speeches 5. challenges ahead but i have also said that no two economies or financial sectors are alike. in that respect, europe is different from the arab region. each individual european or arab country is different from its neighbours. and each individual bank is different from its competitors. cooperation and shared rules can only be successful if we acknowledge these differences. let me give you an example. in germany, the banking system is very diverse – in particular, there are a large number of small banks. if you compare germany to its neighbour france, you will find that the banking sectors of the two countries are more or less of the same size in terms of total assets. but at the same time, germany has about 1, 700 credit institutions and foreign branches while france has less than 500. germany has one global systemically important bank while france has three. as regulators and supervisors, our task is to remain neutral towards such differences, but nevertheless to acknowledge them. our regulation and supervision must respect them and not put a particular sector, a particular business model or a particular size at a disadvantage. at this point, i see room to improve our current regulatory framework in europe. more precisely, we need to strengthen the principle of proportionality in banking regulation. right now, proportionality is a hotly debated topic in europe, and it will be debated right here as well in just a moment. the key issue arises when the basel rules are – more or less – applied across the board. this is because originally they were made for large, complex, internationally active banks. as a result, the rules themselves have become extremely complex, especially with basel iii. while appropriate for the global players, the rules tend to overburden small institutions. the main problem is the compliance workload – that is, the effort associated with meeting the requirements as well as demonstrating that they ’ ve been met. in europe, we are currently busy fine - tuning our regulatory framework by providing some relief for small, low - risk institutions. importantly, capital requirements will remain untouched. but we are aiming to reduce disclosure requirements, simplify reporting and exempt some institutions from recovery and resolution planning, among other things. proportionality is one task for the near future. but there are many more challenges for the near and for the more distant future.