caleb m fundanga : consolidated supervision remarks by dr caleb m fundanga, governor of the bank of zambia, at the joint mefmi - fsi regional seminar or on consolidated supervision, lusaka, 19 october 2009. * * * the executive director of mefmi, dr. elias ngalande the fsi, senior financial sector specialist, mr amarendra mohan the director, financial sector management programme of mefmi, mr alphious ncube distinguished resource persons, participants, ladies and gentlemen it is my honour and privilege to officiate at this regional seminar on consolidated supervision jointly organised by the financial sector management programme of mefmi and the financial stability institute of the bank for international settlements. may i also take this opportunity to welcome and thank our distinguished resource persons, for accepting invitations to come for this important seminar. it is my hope and trust that their participation will enrich the deliberations of this seminar. before i delve into the intricacies of the seminar, i would like to applaud mefmi, and the fsi for consistently working together in the region to upgrade the banking supervisory skills. i am reliably informed that at least once every two years, the two organisations organise a high level seminar on a topical issue. it is therefore befitting for me to commend the two institutions for the work well done. ladies and gentlemen, to some, it would not be a surprise to note that the seminar comes shortly after the first anniversary of the collapse of lehman brothers, one of the first banks to fail in a series of cascading defaults of major international banks, which precipitated the onset of the current global financial crisis and the resultant worldwide economic recession. the case of lehman brothers is just one of the many that highlights apparent weaknesses in the global regulatory and supervisory environment. to this end, market practitioners and academics are still analysing and discussing the causes, prudential supervision frameworks, problem bank resolutions and strategies to avoid future systemic challenges. as the current global financial crisis has demonstrated, critical deficiencies still remain in risk management systems. areas in need of critical enhancements include identifying key risks both within and across borders ; assessing these risks, including stress testing and macroprudential analysis to determine the impact on the financial system ; monitoring, developing coordination protocols, reviewing the regulatory frameworks, adopting appropriate risk management frameworks and adopting international accounting standards. while these structural deficiencies are not new

whether this credit flows from banks, nonbank financial institutions, or institutional investors. why is this so? the answer is simple. it is because the credit intermediation process is ultimately what determines how well our economies function and therefore how well our economies are able to grow and allow their citizens to prosper. when the credit intermediation process does not work well, when there are disruptions to the supply of credit to the economy, as history has amply shown, the costs for our businesses and our people can be enormous in terms of lower output and fewer jobs. a well - functioning credit intermediation process is, in short, critical to the sustainability of any economy ’ s success. it is for these reasons that central bankers are interested in the flows of credit from the global securities markets, just as we have needed to know about the flows of credit from the banks whose operations we are charged with overseeing. at the end of the day, the flow of credit from securities markets has the same impact on our respective societies as that from banks. therefore, central bankers have an obligation to understand the nature of these flows and the risks that they raise. crucial to our obligations to our citizens is the need to be certain that these credit markets work smoothly and that credit flows efficiently from those most willing and able to bear the risks to those most able to put the funds to good use. this is as true for the united states as it is for any other country, developed or developing. does this mean that central banks believe that capital markets should be supervised in the same ways banks are overseen? clearly the answer to this question is no. this is not our role. in my view, central banks broadly have two main responsibilities with respect to the global debt markets. the first is to enhance the price discovery process by promoting transparency in their own actions. the second is to ensure that the banks, as providers of liquidity, perform their proper role in supporting the trading process by making sound credit decisions. in the united states, the federal open market committee or fomc has a pronounced effect on the fixed - income market, both through its policy decisions and in the way the federal reserve conducts monetary policy. indeed, an important part of the price discovery process is the anticipation of the federal reserve ’ s future actions. because the federal reserve is such a critical player in the market, it is important that it not create unnecessary uncertainty. that is, the federal reserve has a responsibility to be as transparent as