1. Financial Crisis: Is the World Safer than Before? Prof. Stephen Y. L. Cheung Chairman Core Group on Corporate Governance PARNET PECC

2. Overview Diagnosis of Crisis Early Warning Signals of Crisis Crisis Prevention Policy Implications

3. Crisis Large changes in asset prices or exchange rate –Financial institutions –Market participants Information arrives discontinuously Herding behaviour History keep repeating itself

4. Nature of Crisis The nature is changing Capital-accounting crisis are replacing Current-accounting crisis Bank crisis Twin crisis

5. Are Crisis Predictable? Traditional indicators –Current account deficits –Real overvaluation Non-traditional indicators –Non-performing loans –Foreign-currency debt (short-term)  Difficult to obtain undated information

6. Many Academic Literature Focusing on current-account deficits Nature of crisis are changing Unsatisfactory predictive power Early Warning Signal?

7. Crisis Prevention 1.Strengthen Surveillance –Timely data are hard to obtain –Who will do the job, IMF? –Do we have the right people and resource?

8. Crisis Prevention 2.Enhance Transparency Different standards Lack of data; corporate exposures; off- balance-sheet exposures; forward market exposures; nonperformance loans.

9. Crisis Prevention 3.International Standards One standard, whose standard? Ignore local culture Hard to achieve in a short period of time

10. Crisis Prevention 4.Rationalize Capital-account Management 5.Moral Hazard

11. Policy Implications Liberalizing capital-account before reforming domestic financial markets is. Pros and cons on capital flows Short-term vs Long-term Difficult to step back

12. Tax on the inflows – Chile Control on the outflows - ? Stock market intervention – Hong Kong  Cost-benefit analysis Policy Implications

13. Regional Cooperation Micro-issues –PARNET –Institute of Director of East Asia (IDEA.net) –A code of corporate governance –Training for directors –Business Sector Advisory Committee Macro-issues –Regional surveillance – ASEAN or APEC –A single monetary unit?

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