In a keynote address on promoting financial stability, Andrew Crockett, General Manager of the Bank for International Settlements, will argue that preventing financial instability has become a key issue for policy makers.
Despite the more stable monetary environment in most developed countries a number of factors has increased the risk of financial instability. These include: financial liberalisation, the growing role of financial institutions in mobilising savings, globalisation and developments in technology.
These problems have led financial regulators to devote more effort to the prudential management of risk. Andrew Crockett will stress the importance of the regulatory framework working with the grain of market forces to allow the greatest play to market disciplines. Thus the emphasis in regulation should be on requiring disclosure and transparency.
Andrew Crockett will also emphasise the importance of ensuring consistency of international regulation and the importance of law enforcement to achieve an effective regulatory framework. However, Andrew Crockett will reject the idea of a World Financial Regulatory Authority with broad powers of regulatory oversight. He will applaud the structures, like those developed in the UK, for examining financial stability issues. In the UK a number of bodies (the Bank of England, Financial Services Authority and the Treasury) track emerging vulnerability in the financial system. Andrew Crockett will be careful to point out, however, that financial stability is perfectly consistent with the failure of individual insurance companies and banks and with fluctuations in stock market values. The supervisors interest in financial stability matters should be awakened when the basic functions of the financial systems become impaired.
* Andrew Crockett is General Manager of the Bank for International Settlements and Chairman of the Financial Stability Forum.
** This lecture is one of a series of Financial Services Regulation lectures, organised by the Institute of Economic Affairs and Cass Business School. They are held at Cass Business School, 106 Bunhill Row, London EC1Y 8TZ. Other speakers will be Sir Adam Ridley on Wednesday 12th Feburary, Baron Alexandre Lamfalussy on Wednesday 19th February and Sir Howard Davies on Wednesday 26th February.