Unsurprisingly, emerging markets are leading the way out of the current economic crisis. This tumultuous time has also shone a spotlight on the importance of the largest emerging economies through highlighting the dramatic imbalances in global savings and consumption excesses. These imbalances are even more dramatic when viewed in together with the underlying demographics of the emerging markets. Given this context, it is clearlyof vital importance that we ensure emerging ecnomies are well consulted and integrated into future global regulatory and oversight archiecture. Long-term financial stability will only be achieved if this is a fully inclusive and substainable process, said Deutsche Bank chief executive officer Asia Pacific, Colin Grassie, in his comprehensive presentation on Role of Emerging Markets in the New Global Ginancial Archiecture -Whats Next at the global meeting of the Emerging Markets Forum here on Thursday.
Grassie noted that the financial crisis did not impact financial institutions so dramatically in emerging markets. Increasing scale, deregulation and financial sophistication over time, will present potential challeges, similar to the ones faced by developed economies. There is at least a general consensus on the areas that have proven deficient and need reform, for example market risk and liquidity management, transparency, market infrastructure and capital requirements, he said.
Grassie further added that in view of the collapse of banks and financial institutions in developed economies, macro prudential supervision must become a central pillar for the supervisory system in both developed, as well as emerging markets and it must be coordinated in a practical manner. Central banks, supervisors and regulators, public and private sector need to be involved The macro prudential supervisor must have full, direct access to real time data, which is needed to assess systematically important financial institutions and infrastructure. There must be political backing for warnings. Also, macro and micro level prudential supervision must be interwined, whereby warnings must be translated into regulatory supervisory action for every bank in the course of the individual supervisory review proces, he added.
Moreover, Grassie argued that there is a need for better mechanisms at national and international levels to deal with failures of systematically important institutions. These would include rules on nationalisation, the orderly winding up of institutions, cross border transferability and insolvency rules. He said a refragmentation of financial markets cannot be allowed to occur.