The consensus is loud and
clear: in the wake of the worst global financial crisis since the Great
Depression, a fundamental rethink of the structure of the global
financial markets and greater cooperation of the major regulatory
bodies are paramount, said the heads of major financial institutions at
the World Knowledge Forum in Seoul.

ahead of a meeting of the G20 nations in mid-November to discuss
financial reforms, leaders from the 45 member nations of the Asia
Europe Meeting (ASEM) have pledged to cooperate in overhauling the
world’s financial systems and called on the International Monetary Fund
(IMF) to ‘play a critical role’ in assisting countries most in need of

At least five countries
have reportedly sought the help of the IMF in injecting capital into
their economies. The IMF, which has agreed to lend Ukraine $16.5
billion to ease the impact of the financial crisis, is also lending $2
billion to Iceland. Meanwhile, Hungary is reportedly close to securing
a ‘substantial financial package’ from the IMF and the European Union.

Speaking at the World Knowledge Forum, Douglas Feagin, head of Goldman Sachs’

financial institutions group for Asia, believes that reforms of the financial services sector

are crucial in restarting economic growth in the US, Europe and the rest of the world.

Douglas Feagin

to the bubbles in key asset classes, “unclearly unsustainable”
leveraging in the financial systems, and poorly understood and managed
derivative securities, Feagin says: “We are going to have to have a
change across all these areas – the asset price bubbles, deleveraging
and reform of the fundamental securities markets – in order to have a
basis to restart economic growth.”

fears of a global recession continue to weigh heavily on financial
markets around the world, even as many individual countries – such as
Australia, Japan, South Korea, Singapore, Kuwait and Saudi Arabia –
have announced new financial and regulatory measures to shore up their
financial systems and currencies, and boost confidence. 

around the world have so far reportedly pledged about $4 trillion to
bolster banks and restart money markets. China, South Korea, Japan and
ten Southeast Asian countries have also pledged to create an $80
billion fund to combat currency speculation.


Steve Ellis

“I think we are going to see for the first time a private-public sector partnership and a

globally coordinated attack on some of the underlying weaknesses in our global economy,” says Steve Ellis, worldwide managing director of consultancy Bain & Company.

we continue to act as the really globalised economy we are today, and
if we maintain that tight linkage between public and private sector in
ways that can reinforce the flow of capital, that can hopefully
reinforce economic growth and address some of the very pressing issues
facing our planet, I think we could look back on this as a real

there appeared to be consensus among the speakers at the Forum that
comprehensive reforms of the global financial systems are needed,
opinion was split between some calling for a universal financial
regulatory body and those supporting closer and greater cooperation
between the major regulatory bodies around the world.

Sir Leon Brittan, vice chairman of UBS Investment Bank, expressed scepticism about

Sir Leon Brittan

Irish prime minister Bertie Ahern’s suggestion about the creation of
such a universal regulatory body. Brittan, a former vice president of
the European Commission, says he doubts this would be a “correct
solution” given the presence of the IMF and the World Bank, as well as
the protracted length of time needed and the significant challenges in
creating such a regulatory body.

says a ‘more promising avenue’ would be a “college of regulators – and
not a new super regulator – which would work closely together, with
detailed regulations being applied in each individual country.”

between international regulators on a greater scale – even though it is
already taking place and one shouldn’t underestimate the extent to
which it is already happening – is something that is going to be


Jeffrey Shafer

Agreeing with Brittan, Jeffrey Shafer,
vice chairman of global banking at Citigroup, criticised calls for “a
universal global body with no direct democratic accountability” as an
“ivory tower fantasy” and “a diversion of energy”.

a former Under Secretary of the US Treasury, favours a focus in the US
on regulatory functions rather than just on individual institutions.
Regulatory bodies, he says, are needed to look into systemic risks and
the activities of individual financial institutions. 

need to give that systemic institution the power to intervene and
actually make individual institutions do things when they see large
imbalances emerging in the world, and that will be a tough thing to get
into the regulation at the end of the day,” says Shafer.

be sure, overhauling the financial regulatory frameworks around the
world is a dicey proposition because while bad regulations can create
crises, it’s not certain that good regulations can prevent them,
cautions Paul Tregidgo, a vice chairman of the investment banking division of Credit Suisse.

Paul Tregidgo

fundamental issue “right at the centre of the (financial) storm” lies
in how risks are created, assessed, distributed and regulated, which
are regulatory questions that must be addressed, says Tregidgo.

we actually know when we create risk what we are creating? … When we
assess risk, are we actually assessing risk in a world of global
connectivity? Do we understand the cost and price of risk as it should
relate to other instruments?”

we understand that when it is subject to stresses which we have not
experienced before, and lastly when we distribute risk, are we really
distributing it?”

Tregidgo adds
there is a need for closer regulatory oversight of how major financial
intermediaries approach, assess and price risks.

time for a new regulatory contract but that regulatory contract,
broadly speaking, must balance the complexity and connectivity of which
I spoke earlier,”

“I would suggest
minimal regulation but forceful in letter and spirit because innovation
… is not going to go away and must be encouraged to flourish. But
innovation cannot be allowed to game the system.“

there are mixed views about how best to balance regulatory oversight
and allowing room for financial innovation to spur economic growth. But
for the next few years, ‘de-structuring’ or structural changes to banks
and financial institutions will be a theme, says Michael Gordon, global head of institutional investments at fund manager Fidelity International.


Michael Gordon

is going to have a goal of trying to get us to a more simple financial
world,” says Gordon. “We may look forward to a world where banks are
more like banks as we used to know them, brokers more like brokers,
corporate finance returns as a function of itself, asset managers being
pure asset managers and the like,”

“I think we will see a trend back to simplicity away from complexity. I think financial modelling will be less trusted.”

now, the concerted efforts of central banks and major financial
institutions around the world to inject liquidity to resolve the global
credit seizure are working, says Goldman Sach’s Feagin.

“We are now seeing people starting to be comfortable opening up the markets again,”

think we have seen some pretty dramatic steps and some pretty positive
steps but a huge uncertainty remains, and this is going to take many
years to get fully resolved.”

Republished with permission from Knowledge@INSEAD
the online research and business analysis journal of INSEAD.