ajith nivard cabraal : ensuring stability and integrity of the world ’ s financial system over the next few years keynote address by mr ajith nivard cabraal, governor of the central bank of sri lanka, 27th international symposium on economic crime, jesus college, university of cambridge, cambridge, 5 september 2009. * * * chairman, professor barry rider, distinguished delegates, ladies and gentlemen ; i am delighted to be here this afternoon at the historic university of cambridge to deliver one of the closing addresses at your 27th international symposium on economic crime. thank you very much for your invitation, which i am honoured to accept. i am also happy that this year, 2009, marks the 800th anniversary of this great institution. therefore, i would like to take this opportunity to congratulate the university of cambridge on reaching this amazing milestone, and extend my best wishes for the centuries ahead. mr. chairman, at your invitation, i would, today, discuss the ways and means of ensuring the stability and integrity of the world ’ s financial systems in the future. as in the case of all serious and complex reviews, our starting point should necessarily be to critically examine the basic and underlying reasons for this crisis. in that regard, there is now reasonable global consensus that the origin of the turmoil could be traced to excessive risk taking due to pure and simple greed ; recklessness driven by intense, unadulterated greed ; leading to the creation of massive “ bubbles ” in many developed economies, that were not supported by a robust, representative real asset base. no doubt, such risk taking had often been fuelled by lax and short - sighted regulation. to make matters worse, many rating agencies too, tacitly and indirectly, encouraged the excessive risk taking by assigning top ratings to toxic financial instruments, thereby helping to blow up the bubble even bigger. the bubble creating drivers had also been strongly supported by the global ability to transact business at unbelievable speeds and in mind - boggling volumes. this capacity provided the scope to move capital, wealth and resources across borders instantaneously, almost without restrictions or regulatory oversight, at the press of a button. but whatever may have been the drivers, the end result was that this greed and its ill - effects created and nurtured massive “ bubbles ” in many developed economies ; and the subsequent puncturing of these massive bubbles has now revealed just how hollow and empty the financial structures that we relied upon, had been. however, even at that stage

, ensure the stability and integrity of our financial systems. mr. chairman, in a strange and a paradoxical sort of a way, it is somewhat “ fortunate ” that the current financial crisis shocked ( and indeed, almost ruined ) the worlds financial system, at the present stage of evolution of the worldwide financial landscape. if, on the other hand, this crisis had not impacted us at this time of history and consequently we had happily progressed at the same pace for a further 10 years or so, and then in 2017 or 2018 this shock had hit us, can anyone imagine the magnitude of the disaster at that time? in fact, i am quite sure that, if that eventuality had taken place, this crisis would have been too much for the world ’ s financial system to bear, and the resulting catastrophe would have crippled the world ’ s financial systems, as well as the world ’ s political, security and social systems with disastrous consequences. perhaps some keen film maker might even consider doing a simulation of such a scenario, and then making a gripping and horror filled movie, allowing those of us with horror appetites to experience such a dreadful tragedy! mr. chairman, while we are putting into effect various initiatives to improve our processes and procedures to respond to the crises, we must also be conscious that we should not throw the baby out with the soiled bath water. yes, the bath water has been terribly muddied and needs to be replenished. however, at the same time we must realize that the baby although rather dirty, is still quite wonderful. the world ’ s current financial system with all its imperfections, can still deliver enormous value. already, the bold and far reaching steps introduced by many governments and regulatory authorities as well as by the “ victims ” of destability, have shown us that the “ baby ” could recover and grow. in fact, many economies are showing signs of recovery and are seeing light at the end of their respective tunnels. in the light of these developments, we must maintain our energy levels and optimism. even in the midst of the crisis, we have observed many systems that are solid, and frameworks and institutions that are strong, reliable and credible. these institutions must be recognized and encouraged to provide the leadership and direction to bring stability and credibility back, quickly. it is also time for the productive sectors of economies to re - invigorate themselves and deliver higher outputs, so as to support a faster turn - around. mr. chairman,