Minutes - First Meeting: The Institutional Structure of Financial Regulation and Supervision

Regional Financial Sector Forum

First Meeting

The Institutional Structure of Financial Regulation and Supervision

Washington D.C., September 13, 2002

Minutes

1. Mr. Dennis Flannery, IDB Executive Vice-president, opened the meeting stressing the relevance of financial intermediation in the economic growth process. At the same time, he emphasized the Bank's efforts to promote efficient financial markets in Latin America and the Caribbean (LAC), as well as the Forum's role to reach this objective. The Forum's first meeting unfolded in four sessions; the first one devoted to the discussion of conceptual aspects related to the institutional structure of financial regulation and supervision which included experiences from the United Kingdom and South Korea. During the second session, LAC representatives submitted a summary of the main characteristics involved in institutional engineering on these matters, currently enforced in their respective countries. Afterwards, participants focused their attention on discussing each institutional reform's instrumentation aspects, difficulties linked to change processes involving institutional frameworks in regulation or supervision, and lessons derived from experience. Finally, the fourth session centered on the Forum's future agenda, and on establishing organizational standards derived from its activities. Annex 1 includes the meeting's complete agenda. Annex 2 includes the Forum's participants. Annex 3 comprises presentations made during sessions. Documents distributed by speakers will be available soon on the web page to be launched by the Forum.

2. Edgardo Demaestri described the institutional aspects of financial supervision and analyzed the advantages and disadvantages of integrating the supervision of the various financial activities (banking, securities, insurance, etc.). After analyzing the effectiveness and efficiency of the specialized and integrated supervision approaches to achieve basic objectives of financial regulation, Mr. Demaestri concluded that the integrated approach is preferable to the specialized alternative under the circumstances prevailing in most countries of the region. Phillip Thorpe pointed out the importance of the efficient handling of negotiations carried out between the Bank of England and the recently created Agency of Financial Supervision for the success of the integration process in the United Kingdom. Mr. Thorpe also stressed the importance of coordinating these institutions when faced with a crisis. Mr. Sang-Ho Sohn emphasized the fact that the reform process in South Korea had been triggered by a financial crisis and the need to provide an efficient response to emerging challenges, in order to foster the revival of a solvent, stable and efficient financial system. During the debate that followed the presentations, the importance of educating users of the financial system was underlined as a factor that helps to fulfill the objectives of supervision and financial regulation.

3. The exchange of opinions on institutional schemes enforced throughout LAC allowed for the identification of several elements common to the region's countries, making it clear -at the same time- that there is not a single scheme applicable to all financial systems, since regulatory entities are influenced by local political traditions, as well as economic and social environment. Mr. Gavin Buckley specially emphasized this last aspect as he made reference to U.S. experiences. Other area of marked coincidences was the growing trend toward coordination, both formal and informal, between supervisors of different markets. Regarding the integration of supervision and financial regulations structures, there have been worries about possible conflicts of interests that may arise since, while banking regulation tends to emphasize sectorial stability as one of its main objectives, information transparency is essential to setting up standards for securities markets. It was also underlined that most of the region's countries lack regulations and institutions designed to further the protection of financial services users.

4. Regarding reform instrumentation, Mr. Įlvaro Clarke emphasized processes regarding stock markets and their consequences for policy design. There ensued a debate on the convenience of waiting for the right political time to carry out reforms, vis-ą-vis the advantages of a more pro-active role to promote those changes. Public participation through consultation channels, and accountability for any progress made were identified as factors that greatly help for financial services users to see reforms as working in their own interest. It was pointed out the importance of defining a long-term reform agenda with specific purposes and the need for all parts involved to develop a communication strategy, starting with the general public and including influential sectors of society, media, and the Judiciary, among others.

5. The last session was devoted to identifying the topics that might be treated in future meetings, and the most adequate communication technologies, in order to keep up a flow of proactive and relevant information, as well as continued discussion among Forum members. The list included below is not comprehensive. Participants stressed their preference to give priority to the treatment of the following subjects in future events:

Forum participants reached a consensus to select the last issue as main topic for the following meeting, to be convened at the beginning of the second trimester of 2003.

6. All the representatives stressed the added value the Forum means for the region and requested setting up communications channels for the Forum's continuity in time. In the same way, they emphasized the importance of the IDB's support of this initiative, contributing a technical secretary to the meeting. Participants pointed to the convenience of keeping the respective policy makers and one specialist for each subject as regular country representatives in the Forum, while regarding, at the same time, the plurality of regulatory models existing in the region. This structure would lead to a fluent dialogue between the Bank and those responsible for designing and carrying out financial policy, with meaningful implications toward preparing strategies and measures the Bank may support in this area. The IDB is committed to set up an e-mail list encompassing all those involved in this first meeting and to promote an e-forum allowing virtual groups to round off the work done in personal meetings.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 06/01/07