Strengthening supervision of the global financial system is just as important as new regulations for maintaining stability, Reserve Bank of Australia Deputy Governor Philip Lowe has told a UNSW Business School conference.
“Regulation can be measured, it can be printed and it can be enforced, but history teaches us that regulation can’t solve all problems. There needs to be a strong, parallel focus on effective supervision,” he said.
UNSW Business School organised the International Conference on Financial Cycles, Systemic Risk, Interconnectedness, and Policy Options for Resilience, held in Sydney’s CBD between 8 and 9 September, in collaboration with the Asian Development Bank (ADB),and sponsored by Bloomberg and the Reserve Bank of Australia (RBA).
Professor Fariborz Moshirian, the Director of the Institute of Global Finance at UNSW Business School opened the conference, emphasising the need to pay more attention to corporate governance and increase data sharing in order to recognise early warning signs of a crisis. “We need to address global governance in a world that is highly interdependent and this is the challenge for all of us,” he said.
In his opening remarks, the Reserve Bank's Dr Lowe said addressing the issues highlighted by the conference was fundamental to the proper functioning of a modern economy.
Lowe, who replaces Governor Glenn Stevens at the helm of the RBA next week, suggested that the solution went beyond regulation and that institutions must instigate rigorous supervision. “The financial system evolves, so no set of rules can deal with all risks and problems. My view is that a strengthening of supervision is at least as important as the post-crisis regulatory reforms. Rigorous, inquiring supervision that takes a holistic view of the environment is essential to maintaining financial stability and good outcomes for consumers.”
He also praised the collaboration and said that academic research was becoming increasingly vital to the RBA. “It’s really fantastic to see the ADB and an Australian university working together on a conference of this scale.”
Mr Bambang Susantono, the Asian Development Bank’s Vice President, reflected on market interconnectedness saying that resilience cannot be achieved by a single country or region alone. “Distress in any financial institution, product or market will affect our domestic, regional and global financial systems.”
The challenge for the international delegation was to focus not only on ensuring the strength of their respective economies, but also to work together to understand and resolve these global issues, he said.
Keynote Speaker, Nobel-Laureate Professor Robert Engle, from New York University (NYU) Stern, discussed the work of NYU’s Volatility Lab in understanding systemic risk.
Regulation, said Engle, can be adequate to prevent financial disaster, however, the challenge for regulators is to ensure they are addressing the challenges of the next crisis not just the last one. “Institutions have to have the resources to not only survive a crisis, but continue to intermediate and provide financial services,” he said.
Engle emphasised slow global growth as a substantial factor affecting financial institutions globally. “It’s hard for banks to lend profitably in the current market, so how do they repair their balance sheets? If interest rates are so low, and there is no demand for borrowing, what is going to happen?”
He highlighted Australia’s strong economic growth, but said it would be a significant challenge for other economies to mirror Australia’s success.
The conference brought together international regulators, central bankers, and academics to spark robust discussion on the challenges, risk and opportunities facing Asian markets in an increasingly connected financial landscape.
It will also form the foundation of the Asian Development Bank’s 2017 Asian Economic Integration Report.