Zeti: Extensive review of legislation needed

By Rupa DamodaranPublished: 2009/09/25

CENTRAL banks need supporting legal framework to address the dynamic changes in conditions in the current global financial system, says Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz.

She said those in the advanced financial systems have resorted to unorthodox measures to prevent a systemic collapse of the global financial system.

"While action has been based on the sense of urgency and to avoid a total collapse of the system, in the aftermath of the crisis, an extensive review of the legislation needs to be made," she said in her keynote address at the fifth Banking and Financial Law School 2009 conference in Kuala Lumpur yesterday.

The two-day event is jointly organised by the South East Asian Central Banks (SEACEN) Research and Training Centre, the Institute of Bankers Malaysia and Bank Negara Malaysia.

Challenges facing central banks today are far more diverse and complex, prompting the re-examination of their role and effectiveness, said Zeti.

On Malaysia's part, the Central Bank of Malaysia Act 2009 will come into force in November, after being passed in Parliament in July.

"In promoting monetary stability, it is recognised that price stability is to be achieved in an environment of sustainable growth of the economy," she said, adding that the law requires it to take a balanced view to avoid rigid frameworks that could lead to fundamental and sustained damage to the economy.

She highlighted three main challenges faced by central banks in the global financial system - building the capacity to manage the increasing uncertainties, financial safety nets, and increase in financial and economic integration associated with globalisation.

In the area of consumer protection, Zeti said amendments are being put in place to outline the roles and functions of a financial ombudsman to deal with disputes concerning financial services between consumers and the financial institutions.

Meanwhile, Bank of Thailand assistant governor Krirk Vanikkul described Malaysia's new central banking legislation as "powerful and exclusive".

He stressed the need for central banks to be independent in their operations, budgetary areas and personnel.

Thomas C. Baxter Jr, who is general counsel and executive vice-president of the Federal Reserve Bank of New York, said the main challenge for central bankers is to prevent another crisis as severe as the one just experienced.