The Economic Development Institute of the World Bank and the Monetary Authority of Singapore Global Lessons in Banking Crisis Resolution for East Asia
13 May 1998... The World Bank's Economic Development Institute (EDI) and the Monetary Authority of Singapore, with the support of the Ministry of Foreign Affairs of Singapore and the Swiss Agency for Development and Co-operation, jointly organised a regional seminar on banking crisis resolution on May 12-13, 1998 at the Marina Mandarin Hotel in Singapore.
Senior government officials, business leaders, and opinion makers from across East Asia participated in the seminar. The objectives for the programme were for participants to: (a) gain an understanding of system-wide bank restructuring options and the techniques and tools used by different countries to resolve large-scale banking distress; (b) explore the creation of mechanisms for early recognition and treatment of bank failure; and (c) engage in a dialogue with other regional policy makers, regulators, and bankers to discuss ways to work together in East Asia towards creating a more stable banking environment.
In his opening address, Lee Hsien Loong, Deputy Prime Minister and Chairman of the Monetary Authority of Singapore, cited four lessons learnt from the current crisis. First, governments must pursue prudent fiscal and monetary policies to ensure sound macroeconomic fundamentals. Second, bank regulatory and supervisory systems must be strengthened. Third, there must be greater disclosure and transparency in order to help reduce the likelihood of market over-reaction arising from lack of information or information asymmetries. Fourth, Asian countries must develop deep and broad capital markets, and rely less on the banking system for financial intermediation.
In his welcome remarks, Mr. Javad K.-Shirazi, Regional Manager, East Asia and Pacific Region of the World Bank, said that the East Asian crisis was primarily due to misallocated savings and investments, coupled with the failure of external creditors to realise the extent of these imbalances. Weak financial sectors and lack of transparency in corporate governance exacerbated the problem. The key task for the affected countries was to carry out the necessary reforms and minimise the depth and duration of the downturn.
In the inaugural session chaired by Mr. Gautam Kaji, former Managing Director of the World Bank, Dr. Tarisa Watanagese, Director of Financial Institutions Regulation Department, Bank of Thailand, identified the relatively rigid exchange rate regimes and the fragility of financial institution systems as factors underlying the crisis in East Asia. These have resulted in high interest rates, a liquidity crunch, massive deposit withdrawals, and closure of financial institutions, non-performing loans and unemployment.
Mr. Gerard Caprio, Head of Financial Sector Research at the World Bank, presented experience on the frequency and size of bank crises and comparative efforts in dealing with them, as well as models to identify patterns associated with their incidence.
In his speech, Mr. Andrew Sheng, Deputy Chief Executive of the Hong Kong Monetary Authority, said: "I am very optimistic for East Asia in the medium- and long-term." But he also emphasised the short-term need to remove tax and regulatory distortions, reform legal and accounting systems, and allow foreign entry and exit to create a level playing field. He noted the cost of bank restructuring programs and the importance of proper loss allocation.
Mr. Aristobulo de Juan, President of Aristobulo de Juan Asociados, Spain, spoke from his experiences in financial sector reforms in numerous developing countries. Private sector solutions do not always work for insolvent banks. Governments have played a key role in recapitalizing banking sectors while simultaneously ensuring that proper reforms are instituted.
Strong private sector representation on the panels involved Mr. Rodney A. McLauchlan of Bankers Trust Company, Mr. Heinz Pohlsen of Deutsche Bank AG, Mr. William Belchere and Ms. Lynn Exton of Merrill Lynch, and Mr. Paul McGonagle of The First National Bank of Chicago. They discussed issues ranging from lessons from past international banking crises to investor perceptions of the region and ways to resolve and avoid future crises. Standing committees comprising all types of private sector financial institutions to engage in on-going dialogue and employ an early warning system to monitor economic indicators were considered.
The second day's deliberations began with a session on corporate governance chaired by Mr. Danny Leipziger, Senior Manager of the World Bank's Economic Development Institute, who stressed interlinkages between the financial and real sectors and the importance of reforms in governance for financial recovery in Asia. Dr. Jwa, President of the Korea Economic Research Institute, pointed out that strict regulations on bank ownership cannot substitute for diligent prudential supervision. Mr. Ng Kee Choe, President of the Development Bank of Singapore, emphasised the need to bring disclosure practices up to international standards. Mr. Wallison, former General Counsel of the U.S. Treasury and Partner of the U.S. law firm Gibson, Dunn & Crutcher, recommended that Asia adopt limits on "concentrated" and "connected" lending, as stated in the BIS Core Principles.
The conference discussed concrete cases of bank failure resolution in the US, Sweden, Japan and Thailand in sessions chaired by Dr. Richard Herring, Vice Dean and Director of the Undergraduate Division at the Wharton School at the University of Pennsylvania. Speakers included Mr. Jonathan Fiechter, Director of Special Financial Operations of the World Bank, Mr. Ryoji Kitami, Senior Director of the Deposit Insurance Corporation of Japan, Mr. Vicharat Vichit-Vadakan, Secretary General of the Financial Sector Restructuring Authority of Thailand, and Mr. Goran Lind, Adviser to Sveriges Riksbank.
Mr. Tharman Shanmugaratnam, Deputy Managing Director for Financial Supervision of the Monetary Authority of Singapore led the closing panel.
One hundred thirty participants from China/Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Thailand, and Vietnam attended the conference. Conference materials will be made available at the World Bank's web site: http://www.worldbank.org/edi/banking/.
The following speakers and panellists presented at the conference:
William Belchere (Director, First Vice President, Currency and Fixed Income Research and Strategy, Merrill Lynch International, Singapore) and Lynn Exton (Director, Fixed Income Credit Research, Merrill Lynch International, Hong Kong),
Gerard Caprio, Jr. (Head, Financial Sector Research, Development Economics Vice Presidency, World Bank),
Aristobulo de Juan (President, Aristobulo de Juan y Asociados, Spain),
Jonathan Fiechter (Director, Special Financial Operations, World Bank),
Richard Herring (Vice Dean and Director, Wharton Undergraduate Division, University of Pennsylvania),
Sung-hee Jwa (President, Korea Economic Research Institute),
Gautam Kaji (Former Managing Director, World Bank),
Javad K.-Shirazi (Regional Manager, East Asia and Pacific Vice Presidency, World Bank),
Ryoji Kitami (Senior Director, Deposit Insurance Corporation of Japan),
Danny Leipziger (Senior Manager, Economic Development Institute, World Bank),
Goran Lind (Adviser to the Governors, Sveriges Riksbank),
Paul McGonagle (Senior Vice President, Regional Head, Southeast Asia, The First National Bank of Chicago),
Rodney A. McLauchlan (Chairman, Global Banking Group, Executive Vice President, Bankers Trust Company, New York),
Ng Kee Choe (President, Development Bank of Singapore and Chairman, Association of Banks of Singapore),
Heinz Pohlsen (Head of Corporate and Institutional Banking Asia-Pacific, Deutsche Bank AG),
Tharman Shanmugaratnam (Deputy Managing Director, Financial Supervision Group, Monetary Authority of Singapore),
Andrew Sheng (Deputy Chief Executive, Hong Kong Monetary Authority),
Tarisa Watanagase (Director, Financial Institutions Regulations Department, Bank of Thailand),
Vicharat Vichit-Vadakan (Secretary General, Financial Sector Restructuring Authority, Thailand), and
Peter Wallison (Partner, Gibson, Dunn & Crutcher, LLP).