to how fast and far to go and how to trade off between social and political objectives on the one hand and economic efficiency on the other. a sound banking system is fundamental. this starts with the adoption of high standards of financial supervision and regulation supported by a sound legal system. more importantly, regulators and governments should not neglect the establishment of a strong credit culture. this is the “ software ” of good banking governance. banks must lend in a disciplined way, based on commercial viability rather than “ relationships ”. a relationships - based system undermines competition and disclosure. it results at best in misallocation of resources and at worst in a collapse of the whole financial system. banking governance must be complemented by strong corporate governance. poor corporate governance practices have allowed massive unreported losses and hidden liabilities to develop. upgrading corporate governance means raising the quality and influence of boards of directors, protecting shareholder rights and raising and enforcing accounting and audit standards. all these preconditions are necessary before market discipline can work properly. it is encouraging that most of the crisis asia countries have declared their intention to work towards international best practices in corporate governance. but business environments cannot be changed overnight. it involves changing entrenched social relationships and norms that vary from country to country. this will take time. the best hope for individual countries to restore long - term growth in the global village lies in their succeeding in this transformation. conclusion there is no escaping the process of globalisation. in theory, countries can opt out, but in practice the price is prohibitive. while the globalisation of trade flows undoubtedly benefits all countries, the globalisation of capital flows carries much greater risks. ideally, capital markets should be self - stabilising and should promote economic efficiency by directing capital to its best uses on a global basis. but whether this always happens in reality is an open question. the frequent crises, of which this is just the most recent, give us reason for doubt. the asian crisis has wrought grievous harm on many countries. but one positive consequence is that it has provided a fresh impetus for reconsidering and strengthening the global financial system. countries will not want to dismantle the existing structure and start from scratch, as happened in bretton woods after world war ii. more likely and prudently, they will pursue incremental improvements to strengthen the structure and remedy the flaws which have been uncovered. we must find ways to make bubbles and crashes less likely and make countries

of 2028, we can say with greater certainty that the post - crisis reforms have left us a financial system that is, on the whole, more robust and more resilient. 2 / 9 bis central bankers'speeches large banks are now stronger, more liquid, and less leveraged. derivatives markets are safer and better collateralised. the era of enhanced supervision ( 2021 onwards ) the third phase began from around the early 2020s, when the focus shifted away from rulemaking to enhancing the supervision of financial institutions. the global financial crisis was not just about gaps in regulation, it was also about gaps in risk management and supervisory oversight. three developments in recent years added new impetus to the supervision agenda. first, as the international activities of global banks increased and became more complex, regulators realised that effective supervision increasingly required much stronger cross - border co - operation and even co - ordination. the basel concordat ii of 2024 laid the foundation for more collaborative and meaningful supervisory colleges ; strengthened the functioning of the crisis management groups ; and set out more clearly the responsibilities of home and host supervisors. second, supervision extended beyond checking on financial institutions ’ risk management and internal controls to better understanding the risk culture of these organisations. processes, controls, and limits can only go so far in restraining excessive risk - taking. ultimately, it is people that take risks. and the incentive structure, governance practices, and value systems in financial institutions are what determine their attitude towards risk. regulators came together to establish common frameworks for what we now call culture and conduct supervision. this included sharing information on errant industry professionals to deter the problem of “ rolling bad apples ”. supervisors began to use data analytics, sentiment assessments, and the tools of behavioural psychology to gain insights on the culture and conduct in financial institutions. these insights served as inputs to supervisory assessments of the risk culture in financial institutions and, where necessary, pre - emptive interventions. third, the active integration of technology into the supervisory process – what we now call suptech – began to dramatically enhance supervisory effectiveness by the mid - 2020s. data analytics finally solved the long - standing challenge that banks had in aggregating credit and market exposures across various businesses and geographies. this enabled banks to derive a consolidated risk profile in real - time. and the integration of regtech and suptech allowed data from financial institutions to flow directly into regulators ’ data bases in machine - readable formats through application programming interfaces or apis. supervisory officers