marion williams : governance and regulation of the financial sector – post meltdown : what has changed? remarks by dr marion williams governor central bank of barbados, at the seminar on “ governance and regulation of the financial sector – post meltdown : what has changed? ”, bridgetown, 14 october 2009. * * * senator the hon. darcy boyce, distinguished speakers, members of the board of the central bank of barbados, deputy governors, members of management and staff of the bank, managers of financial institutions, specially invited guests, distinguished ladies and gentlemen : welcome to the central bank of barbados and to today ’ s seminar on governance and regulation of the financial sector – post meltdown : what has changed? i extend a special welcome to our overseas speakers mr. geoffrey bell, ms. jane darista, mr. amar battacharya and mr. osbourne nurse. we thank you most sincerely for taking time out from your busy schedule to be here. the high level of attendance this morning suggests a keen interest in international and regional developments and their impact on the financial sector. our distinguished speakers will be discussing several critical issues as the world tries to chart a way forward for the financial sector. i will offer some preliminary remarks about the areas which i expect that we will cover. attitudes and perspectives the global financial crisis and its bank failures, collapses, scandals etc. cannot be undone. whatever its genesis – developed and developing countries, offshore or onshore financial centres, we all need to change attitudes, perspectives and strategies in order to ensure that institutions all across the globe are strengthened and that we restore consumer confidence and trust, globally, in financial systems. the interconnectedness of financial systems is such that the failure of an individual systemically important financial institution can reverberate globally. the dramatic changes in the global financial landscape over the past year have been historical in their proportions. in a period of such tremendous changes it will be necessary to take stock of where we are and to question how the financial sector is being governed, regulated and supervised. without doubt there will be changes in global rules as we have already seen and in global cross – border movement of funds, ownership structures and similar types of arrangements. research and discussion is needed on important subject areas that will be discussed today. basic questions even basic questions about who should have responsibility for regulation and whether the lender of last resort function should be separated from the regulatory function are now becoming important issues on the table. in the uk it now has political

legislation. second, the proposed mediation and coordination powers should promote further convergence of supervisory action and practices. in this context, i would like to highlight the crucial role of the new supervisory authorities in fostering consistent and effective approaches within the colleges of supervisors. the participation of their representatives in meetings of colleges should favour information exchange within and across supervisors ’ colleges. in addition, the establishment of common supervisory databases should enhance the efficacy of the supervisory colleges ’ action. third, in times of financial distress, the esas can be empowered to adopt decisions fostering a coordinated response by the national supervisory authorities. this can promote effective supervisory action in times of stress. as the financial crisis has shown, swift and smooth coordination among authorities is essential. the esrb let me say a few more words about the esrb. i expect the esrb to make a substantive contribution on two main fronts. first, the esrb will enhance the public sector ’ s ability to detect and assess systemic risk in the european financial system. this should be achieved by monitoring all components of the financial sector that have a systemic impact as well as the interplay between the financial system and the real economy. a sound understanding of the evolution of the linkages – the “ interconnectedness ” – between financial institutions, financial markets and financial infrastructures will be a key element for the successful fulfilment of the esrb ’ s mandate. second, the esrb will fill a gap which – as we know with hindsight – emerged in the run - up to the crisis. this gap consists of the difficulty of translating risk warnings into policy action by the competent authorities. i am confident that the recommendations of the esrb have the potential to foster adequate policy responses. i am aware that there is a wide debate about the scope and addressees of the esrb ’ s recommendations. in my view, the recommendations should primarily focus on the area of financial regulation and supervision and take a macro - prudential perspective. they should not address individual financial institutions. this is the competence of national supervisory authorities. but the esrb could recommend supervisory authorities to use supervisory tools under pillar ii. examples of such tools are loan - to - value ratios, which are measures of liquidity mismatch. work is ongoing in international fora to identify specific macro - prudential tools. the recommendations of the esrb could also identify systemically relevant components of the financial system or key parameters of measures to reduce the potential pro - cyclicality of regulatory requirements