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Front Matter

Front Matter

Author(s):
Stefan Gerlach, and Paul Gruenwald
Published Date:
July 2006
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© International Monetary Fund 2006

All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission.

No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP.

Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

The authors have asserted their right to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988.

First published 2006 by

PALGRAVE MACMILLAN

Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world

PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries.

ISBN 13: 978-1-4039-8751-8 hardback

ISBN 10: 1-4039-8751-3 hardback

This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources.

A catalogue record for this book is available from the British Library.

Library of Congress Cataloging-in-Publication Data

Procyclicality of financial systems in Asia/edited by Stefan Gerlach and Paul Gruenwald

p. cm.

Includes bibliographical references and index.

Contents: Procyclicality and volatility in the financial system: the implementation of Basel II and IAS 39 - Sources of procyclicality in East Asian financial systems - Procyclical financial behaviour: what can be done?

ISBN 1-1-4039-8751-3 (cloth)

1. Financial institutions-Asia. 2. Business cycles-Asia. 3. International finance. I. Gerlach, Stefan. II. Gruenwald, P. (Paul).

HG187.A2P76 2006

332’. 042095-dc22

2005058270

10 9 8 7 6 5 4 3 2 1

15 14 13 12 11 10 09 08 07 06

Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne

Contents

List of Tables

Acknowledgments

We are very grateful for the support and encouragement received from Joseph Yam, Agustín Carstens and David Burton.

We would also like to thank those who contributed the excellent logistical support that made the seminar a success. On the HKIMR side, Matthew Yiu and Emily Cheng took care of numerous details in making sure the arrangements were top notch. They also played a key role in helping to coordinate the production of this volume. On the IMF side, Ms Atta Tse and Mr Alfred Wong of the Hong Kong SAR sub-office smoothly handled a truly impressive number of organizational details, thereby contributing to a very happy (and hence productive) group of conference participants.

Last but not least, we would like to thank Amanda Hamilton and Katie Button of Palgrave Macmillan, without whose expertise and, most importantly, patience, we never would have gotten this volume off the ground.

Participants and Other Attendees

Participants

David Burton is Director, Asia and Pacific Department of the International Monetary Fund.

Agustín Carstens is Deputy Managing Director at the International Monetary Fund.

K. C. Chan is Dean, School of Business and Management at the Hong Kong University of Science and Technology.

Gerard Dages is Vice President, Emerging Markets and International Affairs at the Federal Reserve Bank of New York.

Charles Goodhart is Professor of Economics at the London School of Economics.

Már Gudmundsson is Deputy Head, Monetary and Economic Department at the Bank for International Settlements.

Maximilian Hall is Professor of Banking and Financial Regulation at Loughborough University.

Mingzhi Han is Director-General, International Department at the China Banking Regulatory Commission.

Eiji Hirano is Assistant Governor at the Bank of Japan.

Kevin Ho is Permanent Secretary, Financial Services and the Treasury (Financial Services) in the Hong Kong SAR Government.

Stefan Ingves was Director, Monetary and Financial Systems Department at the International Monetary Fund and is currently Governor of the Riksbank.

Sang-Kuang Ooi is Deputy Governor of Bank Negara Malaysia.

Peter Pang is a Deputy Chief Executive of the Hong Kong Monetary Authority.

Yung-Chul Park is Professor, College of Political Science and Economics at Korea University.

William Ryback is a Deputy Chief Executive of the Hong Kong Monetary Authority.

Andrew Sheng is the former Chairman of the Hong Kong Securities and Futures Commission.

Glenn Stevens is Deputy Governor at the Reserve Bank of Australia.

Amando Tetangco was Deputy Governor for the Banking Services Sector at the Bangko Sentral ng Pilipinas, and is currently Governor, Bangko Sentral ng Pilipinas.

José Viñals is Director General, International Affairs at the Banco de España.

Tarisa Watanagase is Deputy Governor, Financial Institutions Stability at the Bank of Thailand.

Wong Fot Chyi is Executive Director, Macroeconomic Surveillance Department at the Monetary Authority of Singapore.

Joseph Yam is Chairman of the Hong Kong Institute for Monetary Research and Chief Executive of the Hong Kong Monetary Authority.

Also in attendance

Sean Craig is Senior Economist, Monetary and Financial Systems Department at the International Monetary Fund.

Stefan Gerlach was Director of the Hong Kong Institute for Monetary Research and is currently Head of Secretariat, Committee on the Global Financial System at the Bank of International Settlements.

Paul Gruenwald is the International Monetary Fund’s Resident Representative in Hong Kong SAR.

Alfred Kammer is Adviser, Office of the Deputy Managing Director at the International Monetary Fund.

Julia Leung is an Executive Director (External) of the Hong Kong Monetary Authority.

Foreword

In November 2004, the Hong Kong Institute for Monetary Research1 and the International Monetary Fund (IMF) co-hosted a one-day seminar on the procyclicality of financial systems in Asia. The event took place at the Hong Kong Monetary Authority (HKMA).

The seminar was the brainchild of Norman Chan, former Deputy Chief Executive of the HKMA. Mr Chan argued that while policy-makers across Asia continued to be concerned about the tendency for financial sector activity to amplify real sector activity, there had been very little regional dialogue on this issue. Indeed, he noted that the bulk of the analytical work and all of the conferences to date had focused almost exclusively on European and US experiences. Mr Chan thought that an Asia-based and Asia-focused event on the topic was both appropriate and overdue, and asked whether the IMF would lend its support to the idea. The Fund, with strong support from its management, was happy to agree.

Thus, the objective of the seminar was to bring together for the first time senior policy-makers from across the Asia region, academics and staff of international organizations to share experiences in identifying, measuring and addressing financial sector procyclicality in the Asian context. The aim of the seminar was functional - it was pitched at practitioners rather than academics, and the work and discussions were more in the spirit of “how to” rather than trying to arrive at crisp theoretical results. The present volume brings together the three main discussion papers of the seminar as well as comments on those works by key participants.

The conference was organized by Stefan Gerlach, former Director of the Hong Kong Institute for Monetary Research and former Executive Director of the HKMA’s Research Department, and Paul Gruenwald, the IMF’s Resident Representative in Hong Kong SAR. They also edited this volume.

It is our sincere hope that this volume 2 and, more generally, the process begun by the seminar, will be the first step in a long and fruitful regional dialogue. The ultimate aim is to work towards a better understanding of the nature and consequences of procyclicality of financial sectors in Asia as well as the formation of appropriate, welfare-enhancing policy responses.

JOSEPH YAM

Chairman

Hong Kong Institute of Monetary Research

AGUSTÍN CARSTENS

Deputy Managing Director

International Monetary Fund

Note

A research institute affiliated with the Hong Kong Monetary Authority.

Nothing contained in this book should be reported as representing the views of the IMF, its Executive Board, member governments, or any other entity mentioned herein. The views expressed in this book belong solely to the authors.

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