Future of banking

The global financial crisis has pointed to the age-old truth that size does not count. In the end, it is good financial accounting, corporate governance and risk management that matter.
Do you think this development will change the parameters set for Malaysian banks to be managed and regulated?

Our regulatory and supervisory framework has always placed emphasis on strong governance, effective risk management and having adequate capital buffers rather than on placing restrictions on size.

The supervisory expectation with respect to governance and risk management structures and practices will, however, be strengthened over time to stay ahead of developments in the financial system.

For institutions that have become exceptionally large, more rigorous surveillance will, however, be imposed and the expectations will be higher. There will essentially be tougher supervisory oversight on such systemically important institutions. This will allow for early intervention and thus prevent widespread disruptions to the overall financial system as well as high resolution costs.While there is no restriction on how large an institution may become, a minimum size is important. After the Asian financial crisis, the minimum capital requirement was raised. This not only allowed for greater economies of scale and the ability to invest in the required technology and talent, but also strengthened the level of resilience to external developments

What is your take on how far central banks are actually taking steps to control future crises?
A central bank cannot micro-manage. It has to ensure that the system has the governance and risk management structures and practices in place.

There should also be no gaps in the financial system where you have highly regulated and non-regulated institutions, for instance, in the US.

In our case, our investment banks are jointly regulated by Bank Negara and the Securities Commission. So it has to do with the regulatory coverage and scope of the regulation.
It is during good times that one needs to build the buffers, and this is what we also did. Our banks are very well-capitalised and not over-leveraged as we have a huge deposit base to begin with.