and beyond. value creation at the turn of the twenty - first century will surely involve the transmission of information and ideas, generally over complex telecommunication networks. this will create considerably greater flexibility of where services are produced and where employees do their work. the transmission of ideas, or more broadly information, places it where it can be employed in maximum value creation. a century earlier, transportation of goods to their most value - creating locations served the same purpose for an economy whose value creation still rested heavily on physical, bulky output. not unexpectedly, as goods and services have moved across borders, the necessity to finance them has increased dramatically. but what is particularly startling is how large the expansion in cross - border finance has become, relative to the trade it finances. to be sure, much cross - border finance supports investment portfolios, doubtless some largely speculative. but at bottom, even they are part of the support systems for efficient international movement of goods and services. the rapid expansion in cross - border banking and finance should not be surprising given the extent to which low - cost information processing and communications technology have improved the ability of customers in one part of the world to avail themselves of borrowing, depositing, or risk - management opportunities offered anywhere in the world on a real - time basis. these developments enhance the process whereby an excess of saving over investment in one country finds an appropriate outlet in another. in short, they facilitate the drive to equate risk - adjusted rates of return on investments worldwide. they thereby improve the worldwide allocation of scarce capital and, in the process, engender a huge increase in risk dispersion and hedging opportunities. but there is still evidence of less than full arbitrage of risk - adjusted rates of return on a worldwide basis. this suggests the potential for a far larger world financial system than currently exists. if we can resist protectionist pressures in our societies in the financial arena as well as in the interchange of goods and services, we can look forward to the benefits of the international division of labor on a much larger scale in the 21st century. what we don ’ t know for sure, but strongly suspect, is that the accelerating expansion of global finance may be indispensable to the continued rapid growth in world trade in goods and services. it is becoming increasingly evident that many layers of financial intermediation will be required if we are to capture the full benefits of our advances in finance. certainly, the emergence of a highly liquid foreign exchange market has facilitated

emmanuel tumusiime - mutebile : recent initiatives designed to increase the efficiency of the ugandan banking system address by mr emmanuel tumusiime - mutebile, governor of bank of uganda, to the annual bankers ’ dinner, kampala, 4 march 2005. * * * distinguished guests, fellow bankers, ladies and gentlemen an after dinner speaker who was new to the art of public speaking stood up and having suitably saluted his audience stopped dumbfounded. presently, however, he composed himself sufficiently to begin his speech. “ a few hours ago only the lord and i knew what i was going to say ….. but now the lord only knows ”. it is always an honour for me to be a guest speaker at this annual event where the banking fraternity gets an opportunity to interact and exchange views in a relaxed environment away from each one ’ s busy place of work. at a similar event last year, i was challenged to speak about the basel ii accord or the new capital accord as it is referred to by many of you. i vaguely recall the levels of boredom which showed on the faces of most of those who were present that evening, which is something i do not wish to see repeated tonight. this time round i will make life easy for everyone by talking about mundane things let me first report on the state of the financial sector. substantive progress has been made in building a sound and profitable financial system. in the 1980s and 1990s, the banking system was under severe stress ; many banks were riddled by high levels of non - performing assets and some banks were insolvent. as a result, in 1995, two banks were seized by bank of uganda. the uganda commercial bank had to be restructured and recapitalised by the government and the non - performing assets recovery trust was created in 1995 to recover unpaid debt totaling the equivalent of us $ 34million. ucb deposits at that time represented over 20 % of the total deposits of the banking system and the feeling was abroad that it was too large to be allowed to fail. in 1998 and 1999, four more banks, accounting to about 12 % of the total deposits of the banking system, were intervened by the bank of uganda and closed. the central bank also intervened in ucb and attempted another rescue operation. during this period, the bank of uganda of uganda instituted an internal programme to strengthen banking supervision with substantial resources being put into training and moving towards a risk - based approach to banking supervision. the resolution