Rasheed M. Al-Maraj, Governor, Central Bank of Bahrain, in his keynote at the workshop opened on Wednesday titled ‘the global financial and economic crisis– what next’ said that the last four years the world has been preoccupied with the financial crisis that started by the collapse of Lehman Brothers Bank.
“Financial crisis on-going repercussions have impacted many countries and organizations. Economic growth in almost every developed country reduced dramatically, reaching levels which had not been witnessed for many years. In some countries, particularly those in Europe, it was tantamount to a recession. Meanwhile, most developing countries managed to maintain positive growth, albeit at a lower level than pre-crisis times. There is no doubt that this crisis has caused havoc in the financial sector at an extent unseen since the Great Depression of the 1930s. In aggregate, the consequences brought about by this crisis, whether economically, politically, or socially, have created massive changes and imbalances in the global economy. It has also caused substantial disruption to markets, particularly in relation to the volume and value of commercial and financial transactions. It would not be an exaggeration to say that this crisis has stimulated a re-thinking of the practices and policies that had directed the global economy since the 1980s, during which the world witnessed a move towards liberalization and deregulation of financial markets, easing of administrative constraints on financial transactions, and the end of the separation between investment banking and commercial banking. In many countries some of the complex financial transactions and instruments were subjected to the bare minimum of regulations. It is ironic that it required a global crisis to alert the world to the potential damage these policies and practices could cause. In retrospect, despite the progress in financial engineering, the regulators failed to understand the potential risks associated with these products and the impact on financial stability.”
The two-day workshop being held at the Ritz Carlton Hotel under the patronage of the CBB in association with United Nations Conference on Trade and Development (UNCTAD) attracted over 200 experts, bankers and officials.
“It is important to mirror on what went wrong and draw lessons from this experience to put things back on track so that we have a more stable and less risky business environment than in the pre-crisis years. This will inevitably require internationally orchestrated efforts in order to achieve the highest degree of co-operation and implementation of new standards and practices. The right regulatory framework will help to establish an environment that will lead to sustained global economic growth and reduce the risks associated with the complex financial instruments. We have to work hard to avoid the circumstances which have previously led to economic bubbles, whether in the real estate sector, stock markets or other commercial sectors. As we have seen, these circumstances open the door to structural imbalances and dislocation of resources when the economic conditions change,” Al Maraj said.
“The regulators are now facing a huge challenge in the aftermath of the crisis. The preparation for changes in regulatory framework is underway and will require the industry to embrace the new trends in banking regulation which are aimed at maintaining the banking sector’s contribution to the economic growth. The objective is to build an environment which avoids disruption arising from an oversized sector where the risks of its activities and products are miscalculated and unaccounted for,” he added.
“The CBB will remain committed towards the implementation of all international banking standards, including Basel III. The CBB fully understands and appreciates the importance of placing the banking system in Bahrain on solid ground so that it continues to provide world-class banking services and adjusts to the inevitable evolutionary changes in the banking industry.
“We are fully aware that there lies ahead a paradigm shift in which new regulatory standards will emerge to bridge the gap that was unveiled by the financial crisis. We shall continue our well established practices of working with the banking sector to ensure that it is properly prepared to incorporate the required changes in a positive spirit. We know that the future of the banking industry depends upon our success in this venture.”