14 May 2009

BoJ Shirakawa: New architectures and rules in themselves not sufficient to prevent crisis

"Financial products, institutions, and markets will continue to evolve rapidly", Shirakawa said. "Rules, especially global rules, which require due process before implementation, will inevitably be behind the curve".

"Although the Japanese financial markets have been relatively calm compared with US, UK and the euro area, the effects of the global financial turmoil have been felt through multiple channels", Masaaki Shirakawa, Governor of the Bank of Japan said in a speech made in London.

 

“Foreign banks retreated from certain business areas in Japan”, he said. “Their presence diminished in the yen money market where they had accounted for more than half of turnover before the crisis”, he explained. “In some cases, the Japanese operations of foreign banks faced difficulties in their yen funding.”

 

“Additionally, the spillover of the shocks from the global financial markets basically froze our CP market and corporate bond market. On another note, as foreign banks came under capital constraints, Japanese banks faced increased demand for foreign currency denominated funds from both foreign and domestic firms.”

 

"International discussions to develop a new financial architecture and new rules which would prevent future crises are underway", Mr. Shirakawa said.

 

"However, new architectures and rules in themselves are not sufficient", he warned. "Financial products, institutions, and markets will continue to evolve rapidly", he said. "Rules, especially global rules, which require due process before implementation, will inevitably be behind the curve".

 

Central banks and real time market intelligence obtained from interaction from market participants can and must play a key role in preventing future crises, he concluded and called for close co-operation with financial institutions and other market participants.

 

Full speech

 

© Bank of Japan