he was the senior deputy governor ) : “ it will take a while, partly because we have a very rotten legal and accounting system … the most important thing is that we have very weak bankruptcy procedures. ” 3 the social values of each country underpin the formal structure of laws and institutions. a relationship - based approach towards doing business is part of the culture of most asian societies. few asian societies have the “ contract - based ” commercial culture of the west, particularly the us, with its robust emphasis on legal and impersonal obligations. few have made a practice of separating the ownership of firms from their management. in some countries, there are close ties between the state, the banks and industry, e. g. the state - owned enterprises in china, and the chaebols in korea. all over the region, family - based firms and conglomerates are the norm, especially in banking. companies in the same group would do business with one another, maintaining trust on the basis of family ties and shared ownership. even in japan, where ownership of large corporations is not in the hands of families, long - term corporate relationships and cross - shareholdings have dictated business. this was how entrepreneurship evolved in east asian societies, and among the overseas chinese in south east asia. many of these family firms were hugely successful, driven by the business acumen and entrepreneurial drive of the founding patriarchs, and supported by a web of networks, or guanxi. but the world has changed. family relationships may be an adequate basis for running a medium sized company, but not for an mnc employing tens of thousands of people. to be world - class, companies need to be led by the best man for the job, and this person is not likely to come from the same family, generation after generation. and business based on relationships rather than hard - headed commercial calculations is prone to abuse and under - performance, as was shown in the asian crisis. it will not be easy for the families to relinquish control. the instinct to hand an heirloom down the generations is still strong. there are also real practical difficulties. if the families sell out, who will the buyers be? who will take charge of the companies? most asian countries lack a group of institutional shareholders who can exert market discipline and defend minority shareholder interests, like the straits times, 26 january 2000. mutual and pension funds in the us. nor have they developed a class of professional entrepreneurmanagers, like

found that soundly capitalised banks tend to lend more. 5 our experience in the euro area corroborates this view. the phasing in of new regulatory standards has helped bring about a measurable increase in euro banks ’ capital ratios in recent years. in parallel, and supported by the ecb ’ s comprehensive monetary policy measures, bank loans to the real economy have recovered steadily from their cyclical ( and historical ) troughs and, towards the end of last year, were increasing at their fastest pace since the crisis. 6 this suggests that a sound regulatory framework is an essential element of a country ’ s growth agenda. but in an integrated global economy, financial regulation has to rely on internationally agreed standards. to the extent that countries around the world are signing up to these standards, the conditions for growth in a financially stable environment are being reinforced globally. of course, this does not mean that we should not look back and evaluate critically what has been done already. the fsb, together with other bodies, will undertake a broad evaluation of the individual and combined effects of past reforms. it will assess if the initial objectives have 1 / 3 bis central bankers'speeches been achieved or if there are any unintended consequences that call for changes to the regulatory framework. it will also assess whether reforms aimed at different industries or market segments have created conflicting incentives. and it will take stock of the progress achieved in curbing risk taking outside of the banking sector and in strengthening the resilience of financial market infrastructures. but this exercise should not be mistaken for tolerance of hidden forms of financial protectionism or a relaxation of regulation. turning back the clock on international financial regulation would revive distrust, create financial fragmentation, and risk regulatory arbitrage and a race to the bottom. the stakes are too high to allow such short - termism to thrive. while unilateral financial deregulation may yield quick benefits, its potentially harmful implications for financial stability and, ultimately, economic growth are not likely to be felt until later. and then, those implications would be felt worldwide. ultimately, this would leave the most vulnerable members of society very exposed. more than ever, we europeans are convinced that belonging to the european union ( eu ) helps us maximise the benefits of international cooperation. it minimises the risks of short - sighted unilateralism. it offers a framework that disciplines member states to work towards the common objectives and values enshrined in our treaties. it leverages