regulation & supervision : from old fault lines to emerging concerns 1 your excellencies, distinguished guests, sabah - al - khair and a very good morning. i am delighted to return to this forum for the third time in a row, and i am grateful to h. e. dr. abdulrahman a. al hamidy for inviting me to speak before this august gathering. taking this opportunity today, i would like to touch upon two areas. first, where the years of regulatory reforms have left us in terms of addressing the fault lines that global financial crisis ( gfc ) laid bare, and second, what are the emerging regulatory & supervisory concerns going forward. fixing the old fault lines let me start with the first question : where the years of regulatory reforms have left us? it is well over a decade since the gfc took the financial world by storm. around ten years back, in 2009, the world was reeling from a financial crisis that was unique in both its origin and scale. epicenter of the crisis was advanced countries and the us in particular. and in terms of scale, as research by bis has highlighted, cumulative output loss since the gfc has been a hefty 25 % of the world ’ s gdp, excluding the enormous social costs associated with high unemployment and lost output. rising to the occasion, global leaders moved quickly to address the threats to global financial system – a feat that appears particularly impressive in current times of trade spats and growing nationalism. gfc also led to a fundamental shift in our approach to banking regulation and supervision, essentially by exposing the fault lines in the inadequacy of earlier regulatory architecture. 1 keynote speech delivered by his excellency dr. mohammad y. al - hashel, governor, central bank of kuwait in the 14th high level meeting for the middle east & north africa region, jointly organized by the basel committee on banking supervision, the financial stability institute and the arab monetary fund, on december 11, 2019 in abu dhabi, uae. central bank of kuwait - public عام - بنك الكويت المركزي by now, those fault lines are well - understood. banks held too little capital and of poor quality. inadequacy of capital was further weakened by the absence of a backstop measure to contain excessive leverage. banks that were too big to fail enjoyed the market power but were not required to internalize the cost of risks they brought to the overall system.

improve its strategic and operational decision - making. moreover, banks will need to overhaul their operations, accelerate end - to - end digitization, modernize their technology infrastructure, and transition towards digital channels. mckinsey estimates that banks worldwide could save more than $ 400 billion a year in direct costs by shifting traditional customers to digital platforms, reducing the service cost by 80 to 90 %. by winning the battle for efficiency, banks will not only be able to better engage with customers and achieve higher satisfaction rates, but also curtail operational cost. central bank of kuwait - public عام - بنك الكويت المركزي - 12 - iv. battle for resilience winning the battles for customer loyalty, value and efficiency will help banks to grow and remain relevant. but that growth should not compromise banks ’ soundness or sustainability. this bring us to the fourth battle : the battle for resilience. once again, this is an area where technology, data management and analytics can help banks enhance their risk management functions and strengthen their resilience. banks need to ensure that they have robust capital and liquidity levels, as reflected in a traditional stability matrix, to absorb shocks and effectively manage their risks. but they can further enhance their risk identification and management by analyzing economic, market and customer data in real time. institutions will no longer have to wait for analysts to review the market at monthly or quarterly intervals and then map this back to the customers, assets or the bank ’ s off - balance sheet exposure. through artificial intelligence, machine learning and predictive analysis, banks can remain up - to - date on risks and exposures in real time, from detecting individual cases of fraud to overall balance sheet exposure across products and business functions. as the market moves and news breaks, tools based on data analytics can immediately update executives on the potential impact of these events on their business. v. battle for talent none of the battles can be won without the right people. people are at the core of everything we do, and they are the ones who will bring everything together. this brings us to the fifth battle : the battle for talent. as the banking industry goes through a radical transition, banks will need to widen their talent pools and attract central bank of kuwait - public عام - بنك الكويت المركزي - 13 - a broader range of skills, in line with their shifting business models and changing