According to Kyodo
News, ASEAN central banks plan to set up an “ASEAN bank” system that would
give designated banks the automatic right of establishment within the regional
bloc. The selected banks must be
headquartered in ASEAN, fiscally sound and already operating within the
region. Once accepted, the bank
regulatory authorities of all ASEAN member states would have to grant such
banks the right to operate in their jurisdictions. Kyodo reported that ASEAN central banks are
working on a minimum standard for the ASEAN bank program, and that so far only
three banks from Malaysia, Singapore and Thailand met the anticipated standard.
The program will be discussed at the ASEAN central bankers’ meeting scheduled
for March 26-29 in Phnom Penh.
This is another benefit
arising from the long-delayed implementation of the ASEAN Comprehensive
Investment Agreement (ACIA) on March 1.
Banks and other financial institutions now gain protections for their
investments and operations under ACIA, which had not been available under the
previous ASEAN investment agreements. The
development of Cambodia, Laos, Myanmar and Vietnam as attractive financial
markets also motivate expansion into all of ASEAN, not just the ASEAN-6.
However, what is missing
from the “ASEAN bank” program as discussed in the report is a regional
compliance and enforcement system. Those
qualifying banks would remain subject to primary regulation by their home
countries. Banks such as CIMB and DBS in
Malaysia and Singapore are already subject to high national standards, which is
why the Kyodo News article mentions those countries and Thailand as being the
first countries to qualify for the program.
Hence the issue in qualifying for the “ASEAN bank” program is not
necessarily the structural integrity of the applying banks, but the reliability
of the national bank regulatory systems in their home countries, as discussed in
the Kyodo News report.
Beyond this, ASEAN central
banks need to ensure that the qualifying banks are properly monitored and
regulated on a regional level. This does
not necessarily require creation of an ASEAN central bank regulator. Although this would be preferable, ASEAN’s
preference to govern by committee motivates against creating a unitary
authority.
Nevertheless, the rapid flow
of funds means that banks can undergo great financial stress very quickly, as
evidenced during the Asian financial crisis of the late 1990’s (or even
beforehand, during the Barings collapse, triggered by rogue trader Nick Leeson
in Singapore) and of course during the recent Lehman Brothers and Eurozone
crises. ASEAN should thus devote staff
and resources to ensure that the central bankers have real-time information on
the qualifying banks, and that they are sufficiently cooperative to take
immediate action where necessary.
Otherwise, the consensus-driven governance by committee approach could
operate and react slowly, laying the seeds for a future ASEAN version of the
Lehman Brothers collapse.
Fortunately, the ASEAN
central banks have access to good people and resources in the Asian Development
Bank and the ASEAN Secretariat. They just need more funds, people and resources
to ensure that the “ASEAN bank” system operates well on an ongoing basis.
