Economic crisis ‘sparks global imbalance’
Manama, January 12, 2012
The consequences brought about by the current economic crisis, whether economically, politically of socially, have created massive changes and imbalances in the global economy, said a senior official.
Central Bank of Bahrain (CBB) Governor Rasheed Al Maraj was speaking at a United Nations Conference on Trade and Development (UNCTAD) at the Ritz-Carlton Bahrain Hotel and Spa.
The conference, supported by the CBB, was titled, "The Global Financial Crisis - What Next?".
"It has also caused substantial disruption to markets, particularly in relation to the volume and value of commercial and financial transactions," he said.
"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 liberalisation and deregulation of financial markets, easing of administrative constraints on financial transactions, and the end of the separation between investment banking and commercial banking," he added.
"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," he said.
Al Maraj said that for the last four years the world has been preoccupied with the financial crisis that started by the collapse of Lehman Brothers bank and its on-going repercussions impacted many countries and organisations.
Economic growth in almost every developed country reduced dramatically, particularly those in Europe, while most developing countries managed to maintain positive growth, albeit at a lower level than pre-crisis times, he said.
"I do not intend to reiterate the chain of events that took place during the crisis, but it is important to reflect 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," he added.
"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.
"The regulators are now facing a huge challenge in the aftermath of the crisis," Al Maraj said.
"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," he added.
"Retail banks in Bahrain showed a lot of resilience and were quick to bounce back in the second half of 2011 following improvement in the security situation in the country," Al Maraj told our sister publication Akhbar Al Khaleej on the sidelines of the conference.
These banks are expected to register positives results, he said, stressing that Bahrain is committed implementing the international banking standards, including Basel III by 2019. – TradeArabia News Service