The governments of influential countries such as the US should adopt a more “comprehensive” approach to the financial crisis as the current “piecemeal” measures have led to a crisis of confidence, Liu Mingkang, head of the China Banking Regulatory Commission (CBRC) said.
Speaking at the annual meeting of the International Swaps and Derivatives Association in Beijing, Liu called for a “broad vision” for solving the financial crisis, noting that the US in particular has failed to adopt a systematic approach to the crisis.
“From September of last year we have seen many bills adopted by the US government, and we think that all of those indicated that the government adopted a piecemeal approach and a lack of a building-block approach to dealing with the financial crisis,” he said.
Liu said that the lack of a comprehensive plan to tackle the crisis was one of the reasons that the US government was forced to make a second cash injection into beleaguered insurance giant AIG.
Liu said there were many reasons for the current financial crisis, including the lack of a firewall between the banking industry and the capital markets, too much dependence on “financial innovations,” and over-leveraged banks and financial institutions. He also said there should be more focus on regulation in the future.
“We cannot just depend on the invisible hand to regulate these markets,” he said.
Liu added that while China wants to develop its derivatives market it would do so in a cautious way.
“We will encourage derivatives innovation and development, at the same time Chinese banks should remember that derivatives are derived from the main products,” he said, adding that the CBRC strongly opposes “financial innovation with high leverage,” as well as those that do not support the needs of the real economy.
He noted that the current financial crisis had highlighted the challenges posed to the world by globalization and that many countries were “not ready” for globalization.
“We are entering a globalized market, but the rules of the game are still set by different countries,” he said.