This article first appeared in The Malaysian Reserve on January 22, 2019.
The Asian Shadow Financial Regulatory Committee (ASFRC), a group of experts on financial markets and related policy issues in the Asia-Pacific region, has made several recommendations to preserve financial stability and reduce the likelihood of a financial crisis in the near future.
Prof Martin Young, the chair of ASFRC and Massey University head of School of Economics and Finance, said one of them is to strengthen the macro-prudential policies, which were implemented after the global financial crisis (in 2008).
“However, the limitations and shortcomings of these policies need to be clearly understood.
For example, restrictions on real estate lending ignore the source of bank financing, which may largely come from non-core deposits and external wholesale funding markets over which central banks have little control,” he told a media conference in Kuala Lumpur.
Set up in 2004, the ASFRC held its biennial meeting in Kuala Lumpur yesterday, hosted by Sunway University.
Young said bank regulators in Asia should look closely at increasing bank capital adequacy requirements beyond Basel 3 levels, as is currently being done in countries such as Switzerland and New Zealand.
“In addition, it is critical for financial market participants to better understand regionwide risks and to do so, it requires greater data sharing than currently is the case.”.
Earlier, Young said global debt levels continue to rise, currently standing at about US$244 trillion (RM1 quadrillion), up US$27 trillion since 2016.
“These levels have significant implications for financial market stability and the likelihood of crisis,” he said.
Commenting on how Malaysia should become more resilience from financial shock, Jeffrey Cheah Institute on South-East Asia Prof Woo Wing Thye said the government should stop monopoly in the banking system.
“We need to issue more banking licences for small and medium banks so that there’s no bank that become so important to the system that it cannot fail and more importantly, the small and medium banks will make it possible for small and medium enterprises to get financing,” he said.
He said Malaysia should diversify its economic activity to ensure that it would not be too dependent on one main source of economy, such as manufacturing.