Bursting economic bubble may have averted greater disaster ahead: Sri Lanka CB chief

Sept 08, 2009 (LBO) – The bursting of a global economic bubble in 2007-2008 may have averted greater disaster ahead, but the global financial community must implement a new framework to prevent recurrences, Sri Lanka’s central bank chief has said.

Cabraal said complex financial instruments, especially derivatves, should be subjected to tighter rules and like new drugs should be subject to stringent pre-tests.

Greater transparency in reporting and valuation methods was needed.

“Notwithstanding the robust application of international accounting standards and other globalized approaches, we still have too many subjective features in our valuation and reporting systems, and these need to be addressed,” he said.

He said new reward schemes and sanctions were needed to make financial business professionals encourage them value their integrity and reputations more.

Individual national regulatory authorities should take a greater interest in safeguarding the quality of the balance sheets of the financial institutions within their purview, without conveniently abdicating that responsibility to a global regulator.

“Fifth, we have to build long-lasting and stable partnerships amongst central banks and regulators,” Governor Cabr