of our banks will decline. the local banks have agreed that self - renewal of their boards should be a priority, and have told mas that they will start to make some changes soon. mas looks forward to receiving nominations from the local banks for new board appointments, and to working with their boards to strengthen corporate governance in the local banks. technological innovation : cheque truncation a second area of focus for banks is technology. technological innovations have dramatically altered the financial landscape. payment systems, for example, can be improved by technology. ideally, payment systems should be paperless, and in the long run this will happen. but today ’ s reality is a long way from that. even a technology pioneer like the us depends on large volumes of paper cheques. therefore to apply technology to the payment system, a realistic interim target is to aim for cheque truncation. cheque truncation means that the physical cheque is scanned at the point of deposit, and thereafter the electronic image of the cheque, rather than the paper cheque itself, is transmitted to the clearing house for sorting, and then onwards to the paying banks. in other words, the flow of the physical cheque is fully truncated at the point of deposit. the singapore clearing house association, together with the association of banks in singapore, is currently developing a cheque truncation system. this should be much faster and cheaper than handling paper cheques. we are also considering a national image archive to centralise the storage of cheques. the consolidation of such shared back - end services will yield economies of scale at an institutional level. to the customer, cheque truncation will mean faster processing of cheques deposited, thereby increasing the customer ’ s liquidity and reducing settlement risk. the system will be implemented nationwide by 2001, making singapore the first country to implement cheque truncation on such a scale. development of capital markets besides the need for strong banks, a second lesson from the asian crisis is the importance of deep and liquid capital markets. there is now widespread recognition that asian countries depended too heavily on bank loans for financing. domestic banks lent excessively. foreign banks also went on a lending binge in asia in the years leading up to the crisis in 1997, and just as surely accounted for the bulk of the sudden withdrawal of capital in the two years that followed. had asia relied more on bond and equity financing, it would have had alternative sources of financial intermediation, and the subsequent

mr lee examines issues relating to the changing financial landscape keynote address by mr lee hsien loong, chairman of the board of directors of the monetary authority of singapore and deputy prime minister, at the 16th general meeting of the asian bankers association, held in singapore on 26 november 1999. introduction the international financial landscape is changing rapidly. in asia, economies and financial systems have undergone a traumatic two years. weakening economies uncovered flaws in financial institutions and supervision. entire financial systems went down, undermined by slack lending practices and inadequate legal frameworks. the financial troubles in turn affected the real sector, sending economies into steep decline. now the crisis is passing. in many countries, macro indicators have stabilised, and growth has resumed. but it will take years of hard work to clean up the bad loans, recapitalise the banks, strengthen the legal and supervisory framework, change long established cosy relationships, and put long - term growth on a firmer foundation. while asia has been preoccupied with reconstruction and recovery, globalisation and technology have progressed apace, especially in the us and europe. technology is both a critical cause and a catalyst. financial arenas are becoming more open, new products and services are being invented and marketed, and regulators everywhere are scrambling to assess the changes and master the flux. an international wave of mergers and acquisitions has swept the industry, as boundaries between financial sectors and products have blurred dramatically. the recent repeal of the glass - steagall act in the us will allow the creation of “ financial super - markets ” or one - stop shops that offer banking, securities and insurance services, and further push this trend towards consolidation. developments in banking in this brave new world, one fact remains unchanged : the need for countries to have sound, resilient banking systems, and strong banks. but countries cannot achieve this by closing their markets and excluding foreign competition, except at a very high price. instead, they must use competition to strengthen and upgrade their institutions, so that they can hold their own in an increasingly open environment. this is why singapore has embarked on a five - year bank liberalisation programme, granting foreign banks new licences and more access to the domestic market, lifting foreign ownership restrictions on local banks, and upgrading standards of disclosure and corporate governance of local banks. corporate governance strengthening corporate governance is key to upgrading standards of integrity, professionalism and service in banks in asia. relationships between shareholders, the board of directors, management, and other stakeholders must all be configured in a