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Enhancing Bank Supervision in Asia: Lessons Learned from the Financial Crisis

Author

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  • Zamorski, Michael

    (South East Asian Central Banks)

  • Lee, Minsoo

    (Asian Development Bank)

Abstract

The global financial crisis underlined that sound and effective bank regulation is vital to financial stability. Assessments of the global financial crisis invariably point to ineffective finance regulation and supervision as the main reasons for the onset of the crisis and its severity. In particular, lapses in banking regulation contributed significantly to the outbreak. The crisis reflected the failure of regulatory authorities to keep pace with financial innovation. Bank supervision had been weak by any measure. Supervisors did not conduct regular onsite bank inspections or examinations of sufficient depth. They did not properly implement risk-based supervision, and they failed to identify shortcomings in banks’ risk-management methods, governance structures, and risk cultures. Meanwhile, offsite surveillance systems rely too heavily on banks’ self-reported data to effectively monitor risk. Banking regulation is the primary safeguard against financial instability, but it should be supplemented by macroprudential policies and other new policy instruments now available to regulatory authorities.

Suggested Citation

  • Zamorski, Michael & Lee, Minsoo, 2015. "Enhancing Bank Supervision in Asia: Lessons Learned from the Financial Crisis," ADB Economics Working Paper Series 443, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0443
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    References listed on IDEAS

    as
    1. Claessens, Stijn & Ghosh, Swati R. & Mihet, Roxana, 2013. "Macro-prudential policies to mitigate financial system vulnerabilities," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 153-185.
    2. Dr. Zeti Akhtar Aziz & Michael J. Zamorski & Vincent Choong-Seng Lim & Nestor A. Espenilla, Jr. & Pia Bernadette Roman Tayag, 2013. "SEACEN Financial Stability Journal Volume 1 2013," SEACEN Financial Stability Journal, South East Asian Central Banks (SEACEN) Research and Training Centre, number sfv1.
    3. Maria Monica WIHARDJA, 2013. "Financial Integration Challenges in ASEAN beyond 2015," Working Papers DP-2013-27, Economic Research Institute for ASEAN and East Asia (ERIA).
    4. International Monetary Fund, 2011. "Macroprudential Policy: What Instruments and How to Use them? Lessons From Country Experiences," IMF Working Papers 2011/238, International Monetary Fund.
    5. Mr. Luc Laeven & Mr. Fabian Valencia, 2012. "Systemic Banking Crises Database: An Update," IMF Working Papers 2012/163, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Noman, Abu Hanifa Md. & Gee, Chan Sok & Isa, Che Ruhana, 2018. "Does bank regulation matter on the relationship between competition and financial stability? Evidence from Southeast Asian countries," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 144-161.

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    More about this item

    Keywords

    Basel Committee’s core principles; finance regulation and supervision; global financial crisis; macroprudential policy;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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