The New Financial Architecture: Banking Regulation in the 21st Century

By Benton E. Gup | Go to book overview

5
The Optimum Regulatory Model for the Next Millennium--Lessons from International Comparisons and the Australian-Asian Experience

Carolyn Currie


INTRODUCTION

In February 1993 a poll was published that ranked the regulatory performance of securities markets in Asia (Asiamoney 1993). 1 The ranking, although predictive of the eventual outcome of resistance to contagion from the Asian crisis, 2 was notable for its total failure to query and assess the role of regulatory models governing the most important layer of the financial system, the banking sector ( OECD Systemic Risks 1991).

The view of the systemic crises in Asian economies as being currency cries ignores the Organization for Economic Cooperation and Development's (OECD's) analysis of crises developed after 1987 ( OECD Systemic Risks 1991). It also ignores the Australian response to rapid liberalization of its financial sector. Australia's experience in the last decade has been replicated by Asian economies in a maturation phase in the 1990s--a failure to impose strong prudential measures while not liberalizing protective measures led to an incorrect regulatory model being imposed on the key banking sector. This induced a climate in which banks failed in their delegated monitoring role, with concomitant blowout in bad and doubtful debts. Since the systemic crises in the Australian financial system, which resulted in $28 billion of bad and doubtful debts in 1992 ( Verrender 1997, 27), authorities have attempted to move the regulatory model to the optimum, based on international best practice.

Overall there is a paucity of literature on classifying regulatory models in Asian financial systems. What has been studied has the same focus as

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